    [House Hearing, 112 Congress]
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                             SITTING ON OUR ASSETS:
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                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON

                           RAILROADS, PIPELINES, AND

                              HAZARDOUS MATERIALS

                                     OF THE

                                  COMMITTEE ON

                       TRANSPORTATION AND INFRASTRUCTURE

                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                               FEBRUARY 17, 2011

                                   __________

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                 COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                        JOHN L. MICA, Florida, Chairman

    DON YOUNG, Alaska                    NICK J. RAHALL II, West Virginia
    THOMAS E. PETRI, Wisconsin           PETER A. DeFAZIO, Oregon
    HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
    JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of
    FRANK A. LoBIONDO, New Jersey        Columbia
    GARY G. MILLER, California           JERROLD NADLER, New York
    TIMOTHY V. JOHNSON, Illinois         CORRINE BROWN, Florida
    SAM GRAVES, Missouri                 BOB FILNER, California
    BILL SHUSTER, Pennsylvania           EDDIE BERNICE JOHNSON, Texas
    SHELLEY MOORE CAPITO, West Virginia  ELIJAH E. CUMMINGS, Maryland
    JEAN SCHMIDT, Ohio                   LEONARD L. BOSWELL, Iowa
    CANDICE S. MILLER, Michigan          TIM HOLDEN, Pennsylvania
    DUNCAN HUNTER, California            RICK LARSEN, Washington
    TOM REED, New York                   MICHAEL E. CAPUANO, Massachusetts
    ANDY HARRIS, Maryland                TIMOTHY H. BISHOP, New York
    ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHAEL H. MICHAUD, Maine
    JAIME HERRERA BEUTLER, Washington    RUSS CARNAHAN, Missouri
    FRANK C. GUINTA, New Hampshire       GRACE F. NAPOLITANO, California
    RANDY HULTGREN, Illinois             DANIEL LIPINSKI, Illinois
    LOU BARLETTA, Pennsylvania           MAZIE K. HIRONO, Hawaii
    CHIP CRAVAACK, Minnesota             JASON ALTMIRE, Pennsylvania
    BLAKE FARENTHOLD, Texas              TIMOTHY J. WALZ, Minnesota
    LARRY BUCSHON, Indiana               HEATH SHULER, North Carolina
    BILLY LONG, Missouri                 STEVE COHEN, Tennessee
    BOB GIBBS, Ohio                      LAURA RICHARDSON, California
    PATRICK MEEHAN, Pennsylvania         ALBIO SIRES, New Jersey
    RICHARD L. HANNA, New York           DONNA F. EDWARDS, Maryland
    STEPHEN LEE FINCHER, Tennessee
    JEFFREY M. LANDRY, Louisiana
    STEVE SOUTHERLAND II, Florida
    JEFF DENHAM, California
    JAMES LANKFORD, Oklahoma

                                      (ii)

         Subcommittee on Railroads, Pipelines, and Hazardous Materials

                      BILL SHUSTER, Pennsylvania, Chairman

    GARY G. MILLER, California           CORRINE BROWN, Florida
    SAM GRAVES, Missouri                 JERROLD NADLER, New York
    SHELLEY MOORE CAPITO, West Virginia  RICK LARSEN, Washington
    JEAN SCHMIDT, Ohio                   TIMOTHY H. BISHOP, New York
    CANDICE S. MILLER, Michigan          MICHAEL H. MICHAUD, Maine
    TOM REED, New York, Vice Chair       GRACE F. NAPOLITANO, California
    JAIME HERRERA BEUTLER, Washington    DANIEL LIPINSKI, Illinois
    RANDY HULTGREN, Illinois             JASON ALTMIRE, Pennsylvania
    LOU BARLETTA, Pennsylvania           TIMOTHY J. WALZ, Minnesota
    LARRY BUCSHON, Indiana               LAURA RICHARDSON, California
    BILLY LONG, Missouri                 ALBIO SIRES, New Jersey
    PATRICK MEEHAN, Pennsylvania         PETER A. DeFAZIO, Oregon
    RICHARD L. HANNA, New York           JERRY F. COSTELLO, Illinois
    STEPHEN LEE FINCHER, Tennessee       NICK J. RAHALL II, West Virginia
    JEFFREY M. LANDRY, Louisiana           (Ex Officio)
    JEFF DENHAM, California
    JOHN L. MICA, Florida (Ex Officio)

                                     (iii)

                                    CONTENTS

                                                                       Page

    Summary of Subject Matter........................................    vi

                                   TESTIMONY

    Callison, William, President, Wheeling and Lake Erie Railway.....    30
    Fenton, John E., Chief Executive Officer, Metrolink..............    30
    Loftus, Thomas P., Jr., Chairman, Public Private Investment and
      Project Financing Council, American High Speed Rail Alliance...    30
    Porcari, Hon. John D., Deputy Secretary, U.S. Department of
      Transportation.................................................    17
    Sussman, Michael, President, Strategic Rail Finance..............    30
    Timmons, Richard F., President, American Short Line and Regional
      Railroad Association...........................................    30

              PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

    Barletta, Hon. Lou, of Pennsylvania..............................    56
    Landry, Hon. Jeffrey M., of Louisiana............................    57
    Mica, Hon. John L., of Florida...................................    59
    Petri, Hon. Thomas E., of Wisconsin..............................    60
    Reed, Hon. Tom, of New York......................................    61
    Shuster, Hon. Bill, of Pennsylvania..............................    62

                   PREPARED STATEMENTS SUBMITTED BY WITNESSES

    Callison, William................................................    64
    Fenton, John E...................................................    67
    Loftus, Thomas P., Jr............................................    72
    Porcari, Hon. John D.............................................    76
    Sussman, Michael.................................................    83
    Timmons, Richard F...............................................    86

                           SUBMISSIONS FOR THE RECORD

    Federal Railroad Administration, response to question from Hon.
      Lou Barletta, a Representative in Congress from the State of
      Pennsylvania...................................................    81
    Hon. John L. Mica, a Representative in Congress from the State of
      Florida, and Hon. Bill Shuster, a Representative in Congress
      from the State of Pennsylvania, joint letter to Hon. Ray
      Lahood, U.S. Department of Transportation, regarding the RRIF
      loan program...................................................    50
    Kansas City Southern, written testimony..........................     4

    [GRAPHIC] [TIFF OMITTED]

                             SITTING ON OUR ASSETS:

                        REHABILITATING AND IMPROVING OUR

                          NATION'S RAIL INFRASTRUCTURE

                                  ----------

                          THURSDAY, FEBRUARY 17, 2011

                      House of Representatives,
                    Subcommittee on Railroads, Pipeline
                               and Hazardous Materials,
                Committee on Transportation and Infrastructure,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 11:28 a.m., in
    room 2167, Rayburn House Office Building, Hon. Bill Shuster
    (Chairman of the subcommittee) presiding.
        Mr. Shuster. The subcommittee will come to order. Thank
    you, Mr. Secretary, for being here with us today, and all of
    our other witnesses. I look forward to hearing from all of you.
        This is the first subcommittee hearing--Railroads,
    Pipelines, and Hazardous Materials--and we have got a number of
    new members, and I want to quickly introduce the--or go through
    the list of the Members, and then, of course, introduce some of
    our freshmen that are here, which--I'm sure they are going to
    make a significant contribution to not only the full committee,
    but the subcommittee.
        We have a vice-chair, and our new vice-chair is Tom Reed
    from New York, former mayor of Corning, New York. We appreciate
    having you here. Also, Gary Miller from California is on the
    subcommittee; Sam Graves from Missouri; Shelley Moore Capito
    from West Virginia; Jean Schmidt from Ohio; Candice Miller of
    Michigan; and our new freshman, our Jaime--it's Jaime Herrera
    Beutler, someone has got this reversed. And it is ``Beutler,''
    not--that's what I thought.
        But Jaime Herrera Beutler, from Washington; Randy Hultgren,
    from Illinois--he is--Randy is not here; Lou Barletta from
    Pennsylvania, former mayor of Hazelton, Pennsylvania--Lou, good
    to have you here; Larry Bucshon from Indiana--Dr. Bucshon, good
    to have you on the committee; Billy Long from Missouri--Billy,
    welcome; Pat Meehan from Pennsylvania, who is not here at the
    moment; Richard Hanna of New York--Richard, a successful
    businessman, and great to have his insights on the committee;
    Stephen Fincher, who is not here, from--where is he from, Frog
    Jump, Tennessee, so--interesting place to be from; Jeff Landry
    from Louisiana, coastal Louisiana, and Jeff Denham, who is from
    California, and also he is going to--he chairs the Subcommittee
    on Economic Development, Public Buildings, and Emergency
    Management--Jeff's on the committee.
        I would also like to welcome my good friend Corrine Brown,
    as the ranking member. We worked together for the past four
    years, and I look forward to continue to work closely with her
    on a bipartisan manner to improve rail, pipelines, and, of
    course, the movement of hazardous materials in the country.
        The hearing today, though, is dealing with the RRIF
    program, the Railroad Rehabilitation and Improvement Program,
    known as the RRIF program, which was originally created in 1998
    as a dedicated source of loan funding for railroads'
    infrastructure needs. It was limited to $3.5 billion in total
    outstanding loans. At that point the Congress recognized the
    need for strong freight railroad improvement program, and
    increased that amount to $35 billion.
        We also strengthened the RRIF program in the Passenger Rail
    Investment and Improvement Act of 2008, by increasing the
    repayment period from 25 years to 35 years.
        It's also important to note that in the history of the
    program, we have not had a single default of any of the RRIF
    loans, and I think there has been one payment that was delayed,
    and that was because of a flood or some natural disaster
    occurred.
        Despite the efforts of the committee, the RRIF program is
    in serious need of improvement. Chairman Mica has indicated he
    is interested in pursuing improvement to a number of rail
    issues, and a rail title to the transportation and
    reauthorization bill, and addressing the issues in the RRIF
    program are a top priority.
        Let me point out these loans cost the U.S. Government
    nothing. Loan applicants pay credit risk premiums, and full
    collateralize the loans. The cost of the RRIF program to the
    taxpayer, again, is zero.
        However, only $400 million is currently out in loans,
    utilizing just a little more than 1 percent of the program's
    capacity. And we must improve access to this program. In 2010,
    the Department of Transportation approved only 2 loans in
    2009--2 loans. And in 2008, only 1 loan. Despite require for
    Department of Transportation to consider and approve a loan
    application in 90 days, the average loan processing time for
    the FRA is 13.5 months. That needs to be improved.
        Additionally, the FRA released guidance for the RRIF loan
    program last September that could further hinder the program.
    Chairman Mica and I have expressed our concerns to this new
    guidance last October.
        I look forward to exploring the concerns of the programs
    with our panelists today. At a time when our Nation is doing
    all that it can to spur economic activity, the RRIF program
    stands out as a potential model for how government can
    encourage economic growth. Because RRIF is an innovative loan
    program, not a grant program where the government merely hands
    out cash, the private sector has the incentive to invest money
    in projects that will pay a financial dividend down the road.
        At today's hearing I am interested in exploring ideas for
    improving this important program. Specifically, I am interested
    in ways we can reform the program to leverage Federal funding
    with private sector resources. I am also interested in ways
    that we might be able to apply the RRIF program to improve the
    eligibility for high-speed rail projects. To quote Chairman
    Mica, ``We must stop sitting on our assets.''
        I look forward to working with the chairman and the members
    of the subcommittee to improve and better utilize the RRIF
    program, and look forward to the testimony of today's
    witnesses.
        And I should have started out by saying I apologize for us
    being late, but a pesky little thing about votes we had to
    take, so--and I don't think--we're going to be good for votes
    for a couple of hours, so we should be able to move through
    that.
        I have a--I ask unanimous consent to insert in the record a
    statement by Representative Petri. Without objection, so
    ordered.
        And a statement--or testimony for the record--by the Kansas
    City Southern Railroad. And without objection, we will put that
    into the record. So ordered.
        [Hon. Petri's statement is on page 60; testimony for the
    record by Kansas City Southern follows:]
    [GRAPHIC] [TIFF OMITTED] 65451.009

    [GRAPHIC] [TIFF OMITTED] 65451.010

    [GRAPHIC] [TIFF OMITTED] 65451.011

    [GRAPHIC] [TIFF OMITTED] 65451.012

    [GRAPHIC] [TIFF OMITTED] 65451.013

    [GRAPHIC] [TIFF OMITTED] 65451.014

    [GRAPHIC] [TIFF OMITTED] 65451.015

    [GRAPHIC] [TIFF OMITTED] 65451.016

    [GRAPHIC] [TIFF OMITTED] 65451.017

    [GRAPHIC] [TIFF OMITTED] 65451.018

    [GRAPHIC] [TIFF OMITTED] 65451.019

    [GRAPHIC] [TIFF OMITTED] 65451.020

        Mr. Shuster. Secretary Porcari, we're going to have him up
    first, by himself, and get some questions. I know you have got
    a very busy schedule.
        So we will let him go, and then go to questions. But
    first--and then the remaining witnesses--we will excuse the
    Secretary and then have you come forward.
        And with that, I yield to my good friend from Florida, Ms.
    Brown.
        Ms. Brown. Thank you, Chairman Shuster. It's very difficult
    to turn this gavel over again, but you know how things go
    around here.
        Mr. Shuster. It's democracy.
        Ms. Brown. This is going to be temporary. I have been on
    both sides, and I think I like your side better, but we'll work
    on it.
        Mr. Shuster. Which side is that, the Republican side? You
    could come on over if you want to.
        [Laughter.]
        Mr. Shuster. We'll make room for you.
        Ms. Brown. No, the chairman side. But I am looking forward
    to working with you this session to make sure that we continue
    to have the best freight rail in the country, and that we
    improve our passenger rail network in the world.
        The Department of Transportation estimates that freight
    rail transportation demand will increase 88 percent by 2035.
    Recent studies show that the investment of $148 billion for
    rail infrastructure expansion over the next 28 years is
    required to meet the DOT projected demands. Without this
    investment, 30 percent of rail miles in primary corridors will
    be operating above capacity by 2035, causing severe congestion
    that would affect every region of the country, and potentially
    shifting freight to an already heavy congestion highway system.
        For passenger rail, a working group for the national
    surface transportation policy and review study commission
    reported that the total capital cost estimate of establishing a
    national inter-city passenger rail network between now and 2050
    is about $357 billion, or $8.1 billion annually.
        However, the ability of railroad shippers and states to
    meet the rail infrastructure investment needs is becoming
    increasingly difficult in the current economic climate. And it
    nearly is impossible for anyone to get a traditional bank loan
    today. Congress made a big mistake when we bailed out the banks
    but did not stipulate that they had to lend it out. Now,
    instead of lending money, banks are calling in notes. The RRIF
    program can help railroads, shippers, and states meet their
    rail infrastructure investment needs. But I don't think we are
    taking full advantage of the program.
        I meet with the railroads and others all the time, and they
    tell me time and time again how difficult it is, the
    application process, to navigate, how time consuming it is, how
    expensive. And, in the end, many of them tell me it's just not
    worth it. Well, we are working to do better, and we are doing
    better, and I am looking forward to hearing how much better we
    are doing.
        The Draft Surface Transportation Authorization Act of 2009
    makes significant changes in the RRIF program, which I
    proposed. The bill authorized the Secretary to reduce the
    interest to be paid on direct loans provided to railroad,
    states, and local government, and eligibility for the sole
    purpose of installing Positive Train Control system, allowing
    applicants to use private insurance, in lieu of the credit risk
    premium, and allow applicants to pay the credit premium over
    the life of the loan.
        The draft bill also authorizes appropriations to assist the
    Secretary in reducing the interest rate for loans using--for
    installing PTC (Positive Train Control).
        I look forward to hearing from the witnesses on these
    proposals and other suggestions for improving the RRIF loan
    program.
        Thank you very much. And I turn it back over to the
    chairman.
        Mr. Shuster. I thank the gentlelady from Florida for her
    statement. And again, we're going to proceed with the Deputy
    Secretary, Mr. Porcari. Again, glad to have you here today.
        And for those of you that don't know the Secretary--I think
    most people are familiar--he was a former secretary of
    Maryland's department of transportation, so he's somebody who's
    got real-world experience out there, and knows the problems and
    the hurdles that we face.
        So, with that, Mr. Secretary, go ahead.

    TESTIMONY OF JOHN D. PORCARI, DEPUTY SECRETARY, U.S. DEPARTMENT
                           OF TRANSPORTATION

        Mr. Porcari. Thank you, Chairman Shuster, and good morning,
    Ranking Member Brown and members of the subcommittee.
        On behalf of Secretary LaHood, I am honored to be here to
    talk about the RRIF program. RRIF has helped expand the
    Nation's freight capacity, preserve small town and rural rail
    connections, and improve our urban transportation capacity.
        So, I would like to briefly focus my comments on three
    different areas: first, how RRIF has been used to increase
    freight capacity, improve rail connections, and generate new
    jobs and economic growth; second, the purpose of the RRIF
    notice that we published in the Federal Register on September
    29th of last year; and third, the role of the Department of
    Transportation credit council, and the importance of innovative
    financing.
        On item number one, the Department of Transportation has
    been working with freight providers to improve infrastructure,
    expand operations, and create jobs. Mr. Chairman, you mentioned
    one example, which was Iowa Northern, which received a $25
    million RRIF loan to better serve ethanol producers near
    Fairbanks, Iowa. When the Iowa Northern railroad was severely
    damaged during a flood, the Department approved the railroad's
    request to defer loan repayments. That kept them in business,
    in part, because of the flexibility that we have in the RRIF
    program. Iowa Northern is now back on its feet, it has more
    than 160 miles of track and 100 employees.
        But RRIF isn't only a benefit for freight; it's also
    helping to meet our urban mobility needs. Recently the Denver
    regional transportation district approached the Department
    about redeveloping the historic Denver Union Station, and the
    Department approved both a RRIF loan and a TIFIA loan together
    for Denver. And today, hundreds of people are at work right now
    on this intermodal project.
        On the second point, to build on these successes the
    Department published guidance on the RRIF program last
    September for the first time. The intent was to provide
    transparency to the review process. We wanted to make it easier
    for interested parties to determine whether RRIF was the right
    fit for their needs. The notice does not endorse the previous
    administration's policy of constricting or eliminating the
    availability of credit through RRIF. To the contrary, we were
    trying to get the word out that we were back in business, and
    we want to promote and educate potential applicants about the
    RRIF process.
        That brings me to my final point, which is the Department
    of Transportation's credit council. As it was restructured by
    Secretary LaHood, it also helps promote the RRIF program, and
    ensures consistency and predictability among the Department's
    credit programs. We have regular meetings of the credit
    council, where we peer review potential loans. By adding that
    kind of predictability to the process, we think it helps the
    timely decision-making on loan applications.
        Under Secretary LaHood's leadership, the council strongly
    believes that credit-based financing can help address the
    Nation's infrastructure investment needs. We also believe, by
    the way, that the President's proposal for a national
    infrastructure bank will help promote further innovative
    credit-based financing. And in the current budget environment,
    credit programs enable the Department to leverage our dollars
    and finance more projects with the help of private investment.
        If enacted, many of the RRIF-eligible activities will be
    able to compete for financing in the national infrastructure
    bank without paying that credit risk premium that the RRIF
    program currently requires.
        In conclusion, credit-based financial assistance programs
    such as RRIF will grow in importance in the years to come. We
    will continue to work with the committee, with stakeholders,
    with industry, to ensure RRIF's future success. We share some
    of the frustration in marketing the program and getting the
    word out, and we are looking forward to collaboration and good
    ideas on how to do that better. And I am happy to answer any
    questions that the subcommittee might have.
        Thank you, Mr. Chairman.
        Mr. Shuster. Thank you, Mr. Secretary. I guess we're going
    to have an opportunity to ask you a few questions, and then
    you're going to be replaced as we go forward with Mr. Yachmetz,
    who is the associate administrator for railroad policy and
    development, so--and if I could start off, the 13\1/2\ months
    that it takes, I mean, are we--are there efforts going forward
    to get that down to 90 days? What kind of--what can we expect
    to see that significantly reduced?
        Mr. Porcari. It's a fair question, Mr. Chairman. We are
    committed, as you know, to a 90-day process, from a completed
    application. And the front-end time has been the one that we
    really want to work on to shorten.
        One of the purposes of the credit council is, rather than
    sequentially going back to applicants with a number of
    questions, to get everyone around one table, look at the
    application before it's actually an application, before it's
    formally submitted, try to understand all the nuances of it and
    all the variables, ask all the questions at once before a
    railroad, for example, puts hard money at risk through an
    independent financial advisor, and do that all at once.
        So, we have regular meetings of the credit council to do
    that. We are dedicated to streamlining this process. We want to
    make it more consistent, predictable, and transparent.
        Mr. Shuster. The other question that I have is that there
    are--some of the applicants have complained that the Department
    of Transportation's credit council has hijacked the RRIF
    process, has added to it a lot of time and effort that has
    slowed it down. Can I get your views on that? Are you looking
    at anything to try to streamline that?
        Mr. Porcari. Yes. As I mentioned, the credit council meets
    monthly. If the RRIF loan process is not sequenced so it fits
    in with the meeting schedule, we can also have meetings out of
    cycle--by phone, if we need to.
        The credit council came about under the previous Secretary
    of Transportation, when some of the other department loan
    programs--the title 11 shipbuilding program, in particular--was
    in real trouble, where loans were made that, with a little more
    scrutiny, would have been either made differently or not at
    all. What we are trying to do is apply a consistent approach to
    evaluating these programs, so that applicants know up front
    whether they are likely to qualify for the program or not.
        Mr. Shuster. Well, thank you. And one other question. And,
    you know, I discussed this the other day when we met, and you
    said in your testimony that the RRIF program can be used for
    passenger rail. So high-speed rail, if that were something that
    we were to move forward, is that--the potential is there for
    the northeast corridor to loan money for those--to that type of
    project?
        Mr. Porcari. Yes. The RRIF program can clearly be used for
    passenger rail. It can also be used, by the way, for Positive
    Train Control. It's not an application yet, but there is a very
    large project, DesertXpress, which will go from east of Los
    Angeles to Las Vegas, that we're in discussions with right now.
        The credit council has looked at that and had some
    questions that the DesertXpress private operator is answering
    now. They're not yet eligible, because they need to complete
    their NEPA process and get Surface Transportation Board
    approval. Once they do that, if that goes forward, that alone
    would be in the $4 billion, $5 billion, or $6 billion range.
        Mr. Shuster. Right, OK. Well, thank you. I now ask
    unanimous consent to put in the record Mr. Landry's statement
    for the record. And without objection, we will put that into
    the record.
        And also, I should have also said that we're going to try
    to adhere as closely as we can to the five-minute rule, and so
    we make sure that the Secretary gets out on time.
        So, with that, Ranking Member?
        Ms. Brown. Thank you. First of all, let me just say that I
    want to thank you. And you and Secretary LaHood and yourself is
    really one of the bright spots in the administration, as far as
    transportation and infrastructure. You have done a great job.
        And I am just really outraged today about Florida and the
    governor's unwillingness to use Federal funds for the
    development of high-speed rail and the creation of good jobs in
    Florida over, what, 60,000 jobs is the project that we've been
    working on with--over--since the 1980s.
        And I want to know, because I was on television this
    morning. The governor was saying that the state was at risk.
    Can--was there any financial risk for Florida, as far as the
    project is concerned?
        Mr. Porcari. Congresswoman, Secretary LaHood and I are
    extremely disappointed in that decision. Florida DOT did a very
    good job of eliminating both construction cost risk and
    operating cost risk in the way they structured the public/
    private partnership. The entire agreement was structured to
    eliminate any financial risk to the state. That's a fact.
    People are clearly entitled to their opinions about high-speed
    rail; they are not entitled to their own facts.
        Ms. Brown. So, the Federal Government put up, what, 90
    percent of the project? And private was going to come in, it
    was a true public/private partnership?
        Mr. Porcari. It was a true public/private partnership.
    There is very strong interest from the private sector teams
    that clearly understood that they would have to design, build,
    operate, and maintain that system, and assume all financial
    risk. They were very willing to do that.
        Ms. Brown. Why would they be willing to do that? Because
    there were some questions about the ridership in this
    particular leg. But my understanding, it was because they
    wanted the Orlando to Miami leg to have the first right of
    refusal to participate.
        Mr. Porcari. Yes. First, for a private venture to put that
    kind of capital at risk, they typically do their own ridership
    studies, and I'm sure they convinced themselves, through their
    own due diligence, that it made sense. They're clearly
    interested in the right of first refusal, which was in the
    structure of the proposal for the Orlando to Miami leg, once
    Tampa-Orlando was built.
        I can't think of a better example of a public/private
    partnership, where you have private capital at risk to build a
    project that will serve the already critical needs of Florida
    today, but more importantly, the even more congested Florida of
    the future.
        Ms. Brown. OK. You know, I understand that there was a new
    ridership study. Have you all gotten a copy of that? And that
    ridership study would show that the ridership would be an
    additional 15 percent?
        Mr. Porcari. We have not been given any formal copy of the
    updated ridership study. The state did this additional study,
    an investment grade ridership study. We have asked for that. It
    has not been provided. We have heard informally that the
    ridership is higher than in previous studies by about 15
    percent.
        Ms. Brown. Well, I just want to thank you for your
    leadership. I understand that--you know, I work with Democrats
    and Republicans, it's very bipartisan--we've worked on this
    project for over 20--well, over 20, 30 years in Florida, 1980.
    Bob Graham put--I was on a study commission before I ever got
    elected, working to get high-speed rail in Florida.
        Let me just ask you about the RRIF program. In 2006,
    President Bush proposed to eliminate the program. When Congress
    rejected that proposal, the Bush administration began a
    rulemaking to accomplish the same goal. But when President
    Obama took office, one of the first things he did was withdraw
    this ill-conceived rule.
        Do you think that for some reason people don't see that
    that is not the administration's goal at this time, and why we
    don't get more applicants?
        Mr. Porcari. We are clearly frustrated that we are not
    successful in getting the word out as well as we should, and in
    trying to promote the program as much as we should.
        The short line railroads, in particular, where they connect
    to the Class I railroads, are a critical part of economic
    development, in particular in the rural areas around the
    country. RRIF is one of the single best tools out there. And we
    just did a $56,000 loan, which is the smallest one we've ever
    done. But that grain loader in Mississippi is a very big deal
    for the 20 or 30 jobs that it creates. And we get that.
        So, we share everybody's frustration but we are back in
    business on this. It is clearly creating and preserving jobs.
    But I don't think the word is out. And we know that we owe
    everyone a consistent, predictable, transparent process, so
    they're willing to go through that process and the time of
    getting a loan--especially the small railroads.
        We will continue to work on that, and we look forward to
    working with everybody who has an interest in this.
        Ms. Brown. Thank you again for your leadership. I yield
    back the balance of my time.
        Mr. Shuster. Thank you. And with that, I will recognize the
    vice chairman, Mr. Reed, from New York, for----
        Mr. Reed. Well, thank you very much, Mr. Chairman. And I
    would seek unanimous consent to offer my opening comments for
    the record. I believe we have five days.
        Mr. Shuster. Without objection, so ordered.
        Mr. Reed. Thank you, Mr. Chairman. I would like to offer my
    comments that, first, the RRIF program, to me, seems to be an
    excellent program. It seems to be doing a great job when you go
    down into the weeds and take a look at it.
        Mr. Secretary, we're going to hear from some applicants,
    I'm sure, later today. But from your perspective--I know we're
    down to 13\1/2\ months as the approval process timeline. We
    have a 90-day goal in the statute, is my understanding.
        From the Department's point of view, what is the cause for
    not being able to meet that 90-day requirement in the statute?
        Mr. Porcari. Well first, to be clear, we do meet the 90-day
    completed application goal. But from an applicant's
    perspective, they really want to see it from the time they
    first think about a RRIF loan to when it's approved.
        My observation of what has happened in the past is there
    has been a number of back-and-forths between the applicants
    sequentially asking questions.
        Mr. Reed. OK.
        Mr. Porcari. One of the things we're trying to do, sir,
    through the credit council, is think through all the potential
    questions and variables up front at one time, give those to the
    applicant before an independent financial advisor is hired--
    which can be very expensive--so they can answer those questions
    all at once, get it into a completed application, and we can
    move forward.
        We have been working very closely with the Office of
    Management and Budget, who has been very supportive on this. So
    I think that end of the process is squared away. I think the
    pre-application part of it is where we really need to work to
    compress the timeframe.
        Mr. Reed. And, Mr. Secretary, are you seeing any
    consistencies in applications that aren't complete, as to why
    they're not complete? Is there something that's routinely
    coming up, saying that we need additional information here,
    there, from the Department's point of view, that maybe we could
    highlight here to applicants as we go forward?
        Mr. Porcari. Some of the smaller short line railroads, for
    example, because they're privately owned, don't have audited
    financial statements. That's a requirement.
        With very few exceptions, they have never been through this
    process before. So they are climbing a learning curve. They've
    only been in the commercial lending market before. So it's a
    brand-new process to them.
        We try to tailor the amount of assistance we give them to
    their ability to do the application process themselves. For the
    $56,000 loan example I mentioned, we did the work all in-house,
    because if it's a $56,000 loan and you have to hire an
    independent financial advisor, it's not worth doing. So, we
    have tried to do that.
        What we're searching for are ways through webinars,
    outreach, newsletters, any mechanism that's out there to give
    them a better sense of what will be required if they're
    thinking about a RRIF loan before they even start the process.
        Mr. Reed. OK, and you have those mechanisms in place? Are
    you moving forward with those mechanisms at the Department?
        Mr. Porcari. We are looking, actually, for ways through the
    American Short Line and Regional Railroad Association, or
    anybody else to do that.
        Mr. Reed. OK.
        Mr. Porcari. So we are very open to ideas and suggestions
    on it.
        Mr. Reed. OK. Because that dovetails with my next question.
    Because you had talked about--in your testimony about trying to
    do a better job promoting the program. Can you give me concrete
    examples of how the Department is going to promote this program
    into the industry?
        Mr. Porcari. One that I would like to pursue is just based
    on personal experience. In Maryland, with the Short Line
    railroads, we used them as a critical part of the state's
    economic development strategy. The statewide economic
    development people were very keyed into that. So, whether it
    was a grain elevator or a small manufacturer, they had their
    whole suite of grants, loans, loan assistance available for
    that. RRIF should be one of those tools that they have in their
    toolbox, and I know for a fact that we really haven't done
    everything we can to make the state economic development people
    aware of what's out there.
        I am convinced that that also helps the Short Line railroad
    industry more broadly in each state, because that shows the
    value of that. You tend to focus on the Class I railroads. If
    the cargoes don't get to the Class I railroad via the short
    line, you haven't accomplished anything.
        Mr. Reed. OK. So you're going to move forward with
    notifying the state economic development agencies? Is that one
    of the promotional ideas?
        Mr. Porcari. Yes. We've talked about doing that through the
    National Governor's Association, through other professional
    organizations that might reach them more directly. And that's
    something that I am going to personally pursue.
        Mr. Reed. OK. Any other ideas to promote--the RRIF program?
        Mr. Porcari. Those are some of them. I think, again, if any
    other idea is out there, we want to promote it.
        Mr. Reed. OK. Thank you, Mr. Chairman.
        Mr. Shuster. Thank you. Now I will recognize Mr. Barletta,
    if he has questions.
        Mr. Barletta. Thank you, Mr. Chairman. How does the
    Department explain the priority for projects that enhance rail
    service to small communities and rural areas?
        In a September 28, 2010, guidance, that priority has been
    understood as giving priority to projects ``that support
    interconnected, livable communities.'' What is the connection,
    and how did livable communities find their way in the RRIF
    program?
        Mr. Porcari. In that announcement in the Federal Register,
    we tried to make sure that the strategic plan goals of the
    Department were clear. They were very congruent, they
    overlapped very well with the original criteria in the RRIF
    legislation. They're not exclusive, sir, in the sense that you
    need to meet all those priorities, and they're not an ordinal
    ranking in any way.
        We believe that RRIF is one of the best tools we have for
    rural communities. If you look at the loan portfolio in RRIF,
    until the very recent past, that's typically what the loans
    have been.
        And, in terms of livability, as part of our national
    outreach tour, we heard quite clearly from rural communities
    that livability is important to them, too. And it means, by the
    way, different things in different places. In the rural
    context, one of the issues that came up was it meant being able
    to age in place, having the kind of transportation facilities
    that would allow you to age in place in some of these
    communities that are losing population.
        So, we have been very aggressive in making clear that any
    eligible RRIF application, as long as that money is going to
    the improvement of the railroad, is something that we would
    encourage.
        Mr. Barletta. Thank you.
        Mr. Shuster. You done, Lou? OK, that's all right. I wasn't
    paying attention, sorry, until the end of it. Thank you.
        Mr. Bucshon, I will recognize you. And then after Mr.
    Bucshon, we will go to Ms. Richardson, if she wants to ask some
    questions. We will go to Mr. Bucshon first, then. OK, great.
    Mr. Bucshon?
        Dr. Bucshon. Thank you, Mr. Chairman. Just reading through
    the letter that was published, I mean, what I am trying to
    figure out is--and maybe this has been explained before--is
    why, all of a sudden, that the Federal Government essentially
    felt like they had to add more layers of bureaucracy on top of
    the loan program by examining the cost benefit of a loan, I
    mean--and basically giving an opinion on whether you felt like
    it benefits the public.
        A lot of us are here trying to figure out ways to take away
    layers of bureaucracy, and I'm trying to figure out why we're
    adding some in this area, especially when we're all here to
    promote development of rail and improvement, especially with
    the data that shows how we're going to be over-utilizing our
    current infrastructure in the future. Thank you.
        Mr. Porcari. It's a very fair question. Ironically, the
    purpose of the notice in the first place was to get the word
    out that we very much encourage RRIF loans. It was a change
    from the previous administration, which had actively
    discouraged it. In hindsight, the notice probably caused as
    much confusion as anything else.
        But public benefit is one of the criteria that's in the
    original legislation. A very clear public benefit is providing
    a connection for goods to get from a manufacturer or an
    agricultural source, for example, to a Class I railroad. That
    is clearly a public benefit.
        Dr. Bucshon. If that was in the original, what were we
    doing before, before you guys have added what you have added
    on? What were we looking at before? I mean who was determining
    the public benefit and everything before the--you added another
    layer of bureaucracy?
        Mr. Porcari. It is not an additional layer, sir. In theory,
    the previous loans made by previous administrations, should
    have looked at the same criteria that were in the original
    legislation.
        I can't speak for exactly how their process worked, but
    this is one of the better economic development tools that we
    have. We do understand that. And, in particular, for rural
    areas, where goods movement is important, it's probably the
    single best tool that we have. We understand that.
        And want to streamline the pre-application process, because
    it is, by law, a 90-day process from a completed application.
    But what an applicant cares about is from the moment they think
    about a RRIF loan to the minute that they get the funding. And
    it's the pre-application process that we need to focus on.
        Dr. Bucshon. Could you describe to me the ways in which the
    previous administration actively were discouraging RRIF loans?
        Mr. Porcari. One very specific way is in the fiscal year
    2006 Federal Railroad Administration budget. It says the
    administration proposes eliminating the program because the
    public policy need to subsidize private railroads is not clear.
    That's a pretty clear statement.
        Dr. Bucshon. Thank you. I yield back.
        Mr. Shuster. Thank you. And I will recognize Ms.
    Richardson.
        Ms. Richardson. Thank you, Mr. Chairman. And it's always
    good to see you, Secretary. And thank you for your commitment
    to--as I say often in our committees--of getting out and seeing
    what's really going on where we have these projects.
        My first question is a little specific to my district. We--
    ACTA had submitted a loan application, and I think I had shared
    this with your staff earlier in the week. And originally, as
    you know, your process, I think, speaks to about 90-day review,
    or something like that. And in our process it's already taken
    13 months. So, I was wondering what you were doing to look at
    addressing that.
        And also--so, one, in terms of expediting the process; two,
    have you noticed any redundancies or unnecessary steps? And I
    think for a real solid project that has had great success,
    funding--you know, on time, under budget, the whole thing--it
    just seems like this process is a little cumbersome. What would
    you say to that?
        Mr. Porcari. First, I think ACTA, the Alameda Corridor
    project, which is a fantastic freight rail project serving the
    ports of LA and Long Beach with two Class I railroads, is one
    of the larger, more important freight rail movement projects in
    the country. It's an extremely complicated deal, the way it's
    been structured.
        We are in the final processes of an $83.7 million RRIF loan
    for that. But going through that process, it clearly begged the
    question of whether the financial structure of ACTA was
    sustainable, over the long term. I think a financial analysis
    reveals that it is not.
        What we are doing with this RRIF loan--which does provide
    short-term relief for the Alameda Corridor project--we're also
    making clear that we are going to need to work with them on a
    longer-term restructuring that--for, really, a 15- or 20-year
    period will put it on a sound financial footing. A year or two
    of reduced container movements from those ports imperils the
    whole economics of this, and we need to put it on a more sound
    footing.
        Ms. Richardson. OK. And then my next question is the
    President has already made such a commitment to I think what
    some of us think is a legacy in high-speed rail, and that's
    exciting, and it's long overdue. However, a lot in--long
    standing in the industry are concerned about what continual
    funding we can expect for the systems that we have already in
    place. What are your thoughts on that?
        Mr. Porcari. Well, first, just on the freight rail side, I
    neglected to mention before in the United States we have the
    world's best freight rail system. And if it wasn't here--Class
    I, Class II, Class III, as a system--if it wasn't here, just
    think about what our roads would look like, and what goods
    movement would cost us.
        First and foremost, we want to make sure that we don't do
    any harm to that system and that we, in fact, improve it. On
    the passenger rail side, we know we're going to have 70 million
    more citizens in the next 25 years. We know it's 100 million in
    the next 40 years. If you look at the transportation system
    objectively, how else are we going to accommodate a portion of
    that growth? And that's really where the dual function of
    promoting freight rail and passenger rail comes together. We
    are convinced--and I think there is solid evidence behind the
    fact--we can do both, working with our private sector partners.
    We----
        Ms. Richardson. So--and I apologize, but I've only got a
    minute and 18 seconds--so are you saying you are equally
    committed to maintaining the funding options that we have
    available for our current systems, as well as the high-speed
    rail? Because I don't think they've been quite as balanced,
    thus far.
        Mr. Porcari. We are. And I think that if you look at the
    President's fiscal year 2012 budget proposal, it is solid
    evidence of the continued commitment for passenger rail. Not
    just high-speed rail, but commuter rail, and some of the other
    really critical aspects of it.
        Ms. Richardson. OK. I am co-chair of the California high-
    speed rail caucus. I am supportive, but I am concerned about
    maintaining existing funding for our existing area.
        My last question. I have got 40 seconds. If the President-
    proposed the national infrastructure bank becomes a reality,
    how do you envision the RRIF program fitting into the larger
    infrastructure funding program?
        Mr. Porcari. And----
        Ms. Richardson. Many of us have been supportive of that for
    quite some time.
        Mr. Porcari. The RRIF program could clearly continue. I
    think the national infrastructure bank would be more attractive
    to most applicants, because there is no credit risk premium
    requirement.
        Ms. Richardson. OK. I yield back. Thank you, Mr. Chairman.
        Mr. Shuster. Thank you. I appreciate you adhering to the
    five-minute rule. We continue to move on. Mr. Long, I recognize
    you for five minutes.
        Mr. Long. Thank you, Mr. Chairman, and thank you, Mr.
    Secretary, for being here.
        Mr. John Fenton of Metrolink points out in his statement a
    lack of coordination between the RRIF program's collateral
    requirements and the Federal Transit Administration policy
    prohibiting liens on property purchased with FTA funds.
        How would you recommend addressing this problem, so that
    commuter railroads and other publicly funded agencies that have
    their assets purchased in part with Federal funds can
    participate in the RRIF program?
        Mr. Porcari. It's a difficult question, but a very valid
    one, because collateral reduces the credit risk premium for the
    RRIF program. I would be very happy to meet with him directly
    to try to do that. We're not allowed to subordinate RRIF loans
    to any other non-Federal debt, as well, which could also come
    into play here.
        We're going to have to work through this on an individual
    case basis. Because on both sides of it, the law is clear. And
    if there is a way to do it at all, we would like to do that. I
    would like to meet with him.
        Mr. Long. I think it's a big problem. I think we need to--
    --
        Mr. Porcari. And we have run into similar problems with
    combining different programs in the case of Denver Union
    Station, RRIF and TIFIA, neither of which can be subordinated,
    both of which are Federal loan programs. But we managed to work
    through that.
        Mr. Long. Another question. On kind of the finance angle,
    why does the Office of Management and Budget require that
    applicants' assets first be devalued to 80 percent of the fair
    market value for purposes of establishing the amount of
    collateral necessary to secure a RRIF loan? And is this an
    issue that could be addressed administratively?
        Mr. Porcari. My understanding is the Office of Management
    and Budget is looking at the ability to sell those assets if
    it's required in an illiquid market. It may be some of the
    rolling stock or fixed assets are not necessarily easy to
    dispose of. And you almost certainly wouldn't get 100 cents on
    the dollar for doing that.
        I would point out that OMB--this OMB--has been very
    supportive of the RRIF program, and has been working hard to
    actually turn the loans around quickly. So we have enjoyed a
    very good working relationship with them.
        Mr. Long. OK. And just kind of a statement, I guess. Mr.
    Barletta was asking about the guidance that--interpreted as
    giving projects the support, interconnected, livable
    communities. And in your answer to that, your--``livable
    community,'' you said, meant different things to different
    people. And any time something like that appears in a
    government program, I think it probably portends itself to
    problems. That's just a comment on my part.
        Thank you for your time, and I yield back.
        Mr. Shuster. I thank the gentleman. And the gentleman from
    Illinois, Mr. Lipinski, is recognized for five minutes.
        Mr. Lipinski. Thank you, Mr. Chairman. I thank Chairman
    Shuster, Ranking Member Brown, for holding this hearing today.
    I think there really is very few issues more critical right now
    in transportation than rehabilitating and improving our
    Nation's rail infrastructure. It's something that a lot of
    people don't--the public doesn't see. And so I think there is
    not quite the understanding of the impact that it has.
        In Chicago, we certainly do know the impact, if only for
    sitting there, waiting for trains to go by. But there is, I
    think, some sense of the Chicago being the hub of the Nation.
    Knowing how critical it is to our businesses, and being able to
    move goods efficiently and moving people efficiently, it's
    really critical to moving our economy forward.
        I want to recognize Deputy Secretary Porcari for his
    leadership at the Department. I think that your experience as a
    state transportation secretary has served the USDOT and the
    Nation very well.
        As we move forward now--being from Chicago, I know this
    very well, and know it firsthand, but I think all of us on this
    subcommittee know very well that Chicago is the predominant
    rail hub of North America at a terrible choke point. And we
    talk about rail investment in Chicago, and we're talking about
    CREATE, the public-private partnership to upgrade the region's
    outdated rail network with 71 individual projects, not just
    important to Chicago, but for the entire country.
        Now, I know, Mr. Porcari, you're very familiar with CREATE
    and its importance. And, as we make progress on CREATE and
    these individual projects that are a part of CREATE, can you
    comment on DOT's commitment to CREATE, and what the Department
    is currently doing to advance the program?
        Mr. Porcari. We have a strong commitment to CREATE. It's a
    great example of a public-private partnership. We are taking a
    step back. Everybody has looked at the larger rail
    infrastructure issue in the greater Chicago area, and very
    systematically identified the highest priority for discreet
    projects, and attacked them, one by one.
        Our commitment to that has continued. Chicago has been and
    will continue to be a singular rail hub because of the design
    of the freight and passenger rail system in America. It was
    built, in large part, around Chicago.
        We have clearly collectively, both on the private and
    public side, not invested as much as we needed to in the past.
    We are paying for that today, in terms of freight congestion.
    We know we're playing catch-up on that. But we also know that
    through projects like CREATE, where we're taking element after
    element that's a bottleneck and fixing them, that we're making
    real gains.
        So, we're not going to be done for a long time, but we are
    clearly committed to doing it.
        Mr. Lipinski. Is there anything that you can see as being
    done to improve the process of implementing the CREATE
    projects?
        Mr. Porcari. I think the partnership itself is
    extraordinarily effective, and has been, in structuring the
    sequencing and priority of what needs to be done.
        In a perfect world, more investment on both the public and
    private side would accelerate those improvements.
        Mr. Lipinski. I think that we all understand that there is
    going to be a greater emphasis in transportation infrastructure
    on public-private partnerships, and I think CREATE serves as a
    good example of how it has worked. We can always use more
    funding on both the public and private side.
        But I think as we move CREATE forward, we can be a good
    example for what can be done.
        Although it is always critical to point out that public
    funding in the public part of that is important, because it's
    critical to our Nation moving people and moving goods.
        But as my time is running out, I just wanted to ask Mr.
    Porcari if, for the next few weeks, we have the opportunity to
    sit down and we could talk about CREATE further, and how we
    could continue working together to see it through.
        Mr. Porcari. I would be happy to, sir.
        Mr. Lipinski. Thank you. I yield back.
        Mr. Shuster. Thank the gentleman, and I recognize the
    gentleman from New York, Mr. Hanna, if he has any questions.
    Five minutes.
        Mr. Hanna. Thank you. Thank you very much. Yes. Thank you
    for being here.
        Mr. Porcari. My pleasure.
        Mr. Hanna. It seems to me your response to the 90-day
    requirement and the 13\1/2\-month reality is that it's, with
    all due respect, ``It's them, not us.'' Does that really
    explain the full gap of 10 months?
        Mr. Porcari. I don't believe it's them, not us. I believe,
    first of all, that the distinction of 90 days from a completed
    application, which we have been making, is not enough. I think
    the pre-application part of it is clearly where, together, we
    need to work on it.
        There have to be ways where we can make the process more
    simple and predictable and consistent and transparent. I think
    working through associations and individual short line and
    other railroads is probably the best way to do it. Anybody who
    tells you you can't re-engineer a process and make it more
    efficient is not looking close enough.
        Mr. Hanna. So you would like to see the 90 days moved out
    to some different date, a number of days that makes better
    sense?
        Mr. Porcari. Well, sir, I think the part leading up to the
    90 days is where the schedule can be compressed, and I think
    that's where our efforts ought to be.
        Mr. Hanna. Thank you very much. I yield back.
        Mr. Shuster. I thank the gentleman from New York. And with
    that--anybody on the other side? I think we got everybody.
        So, with that, Mr. Secretary, we appreciate your being here
    today.
        Mr. Porcari. Thank you.
        Mr. Shuster. And you will be replaced--joined at the next
    panel by Mr. Yachmetz.
        Mr. Porcari. Yes.
        Mr. Shuster. And again, thank you. Thank you for being here
    today.
        As the chairman came in and whispered in my ear, he said,
    ``We want to make sure we work together to figure out how we
    make this RRIF program go forward, reducing the time it takes
    to loan, and let's get the money flowing, because it will be
    good for America.''
        Mr. Porcari. We will be happy to come back to the Committee
    with a progress report, if you would like.
        Mr. Shuster. Thank you very much. Thanks for being here.
    With that, the Secretary is leaving, and the next panel can
    make their way forward.
        While they're making their way, I will introduce the entire
    panel, and then of course I will introduce each as they
    testify.
        But we are joined today by William Callison, who is
    president of the Wheeling and Lake Erie Railway; John Fenton,
    the chief executive officer for Metrolink--and I am sure we
    will hear from Mr. Fenton on the issue about the RRIF with
    Metrolink--Michael Sussman, the president of Strategic Rail
    Finance, Thomas Loftus, Jr., who is the chairman of Public
    Private Investment and Project Financing Council, American High
    Speed Rail Alliance, and principal of the Seneca Group. And
    last, but certainly not least, General Richard Timmons.
        General Timmons, it's great to have you back. I know you
    fought a battle for the past several months with cancer, and
    it's great to see you. You look like you're in good health, and
    you look like you're ready, willing, and able to get into the
    fray. So, again, welcome. It's good to see you here today.
        General Timmons. Thank you very much, Mr. Chairman. It's
    good to be back.
        Mr. Shuster. And also Mr. Yachmetz, who is here--I
    introduced earlier, that--he is the Federal railroad
    administer, or Federal administrator of the railroad policy and
    development for the Federal Railroad Administration. So we
    appreciate you joining us to be able to continue to answer some
    questions for us.
        And with that, I will start off with General Timmons. If
    you're ready to go, we will hear you first.

    TESTIMONY OF RICHARD F. TIMMONS, PRESIDENT, AMERICAN SHORT LINE
    AND REGIONAL RAILROAD ASSOCIATION; WILLIAM CALLISON, PRESIDENT,
    WHEELING AND LAKE ERIE RAILWAY; JOHN E. FENTON, CHIEF EXECUTIVE
    OFFICER, METROLINK; MICHAEL SUSSMAN, PRESIDENT, STRATEGIC RAIL
     FINANCE; AND THOMAS P. LOFTUS, JR., CHAIRMAN, PUBLIC PRIVATE
     INVESTMENT AND PROJECT FINANCING COUNCIL, AMERICAN HIGH SPEED
                             RAIL ALLIANCE

        General Timmons. Thank you, Mr. Chairman. And members of
    the Committee, it's good to be here. I appreciate the
    opportunity to provide my thoughts on the railroad
    infrastructure and improvement financing program. I am Rich
    Timmons, president of the American Short Line and Regional
    Railroad Association. We represent about 540 Class II and Class
    III railroads.
        The short line railroad industry has been the primary user
    of the RRIF program: 25 of the 28 RRIF loans approved to date
    are short line railroads. The average short line loan is $27.8
    million. And together they borrowed a total of $695.5 million
    over the last 10 years. These loans have helped short lines
    maximize capital investment through direct rehabilitation. And,
    in some cases, through refinancing existing debt, so as to
    increase cash available for additional rehabilitation.
        We are particularly proud to point out that since the
    program's inception in 1998, not a single short line railroad
    has defaulted on its loan. Only one railroad has ever missed a
    quarterly principal and interest payment, and that was due to
    serious railroad watersheds caused by the 2007 floods in Iowa.
    That delinquency, of course, has been rectified since.
        I would like to emphasize three important points about the
    current RRIF program, and comment briefly on the recent RRIF
    guidance issued by the Obama administration.
        First, RRIF leverages substantial private investment in
    short line infrastructure. These are not grants, but loans that
    must be paid back in full by the railroad. They're relatively
    low interest rate, and the 35-year amortization period are
    terms short lines cannot secure in the private market and it
    allows short lines to undertake projects that could not have
    been done, or that would have been stretched out over many
    years.
        Second, because these are loans that must be repaid, and
    are secured by an ironclad first lien on the railroad's hard
    assets, RRIF loans are not being used to fund frivolous or
    cost-ineffective projects.
        Third, most short lines do not have the in-house manpower
    to undertake rehabilitation projects, must hire contractors and
    additional laborers to do the work. The FRA estimates that 50
    percent of every rehab dollar goes to labor. In addition, 100
    percent of the ties, and the overwhelming majority of the
    materials used in track rehabilitation are U.S. manufactured.
        RRIF is currently authorized at $35 billion, and is yet to
    reach a billion in outstanding loans over the past 10 years.
    This is due, in part, to the slow start-up of the program, and
    to the lengthy delays in the approval process. Over the years,
    I believe the FRA has worked diligently to accelerate the
    process, particularly that part of the process they control.
        Indeed, as I have previously acknowledged before this
    committee, I believe that part of the blame for this slow start
    may lay with the application submitted by my own short line
    railroads. I applaud the FRA staff for their patience and
    willingness to correct our shortcomings, especially in those
    early years. Nonetheless, I believe the FRA is understaffed to
    manage the RRIF program.
        But it also is no secret that, since the beginning, FRA has
    had to deal with substantial institutional opposition to the
    program within other Federal agencies, and that opposition has
    been largely responsible for the severe under-utilization of
    this program. I am fearful that the pattern may be repeated.
        On September 29, 2010, the administration issued a Federal
    Register notice concerning its priorities in granting RRIF
    loans. We believe the new guidelines will make it very
    difficult for small, private railroads to qualify for loans.
    And it eliminates categories of loans that are clearly
    eligible, under the statute.
        I have attached to my testimony a copy of a letter that I
    sent to the USDOT detailing our difficulties with this notice.
    Our primary objections are as follows.
        The guidance creates loan criteria that are not part of the
    underlying statute. The guidance claims the need to ration
    loans, so as not to be disruptive to the railroad economy. The
    railroad industry invests over $10 billion a year in capital
    projects. If the FRA were to double that number of loans over
    night, the combined total would represent just 14 percent of
    the industry's annual expenditures.
        The guidance discriminates against refinancing as an
    eligible purpose, except for public agencies. This directly
    contradicts the statute, which makes no differentiation among
    eligible categories. Short lines borrowed heavily from banks to
    purchase and rehabilitation lines that were going to be
    abandoned by the Class I railroads. Refinancing this short term
    high interest rate of debt is very important to a short line's
    cash flow, and allows it to preserve cash that is much needed
    for rehabilitation.
        The guidance establishes priority categories of politically
    correct RRIF projects which have nothing to do with the
    economic world in which short line railroads operate. The
    categories include enhancing commuter and inner city rail,
    transportation, noise reduction, reduction of waterway
    pollution, development of inter-connected livable communities,
    and reduction of highway traffic. These have nothing to do with
    the short line railroads.
        The guidance creates a new requirement of public benefit,
    defining public benefit as the difference between the benefit
    that would be achieved by using RRIF, as opposed to using
    conventional financing. In the real world, the difference is
    that short line railroads cannot get these kind of loans from
    conventional financing. That was the reason the program was
    created in the first place, the reason why $7 billion was set
    aside to begin with, which is one-fifth of the revolving
    authorization. That amount of money is reserved solely for
    projects primarily benefitting freight railroads, other than
    the Class I carriers.
        Mr. Chairman and committee, I appreciate the opportunity to
    appear before you today, and will be glad to address any
    questions that you may have at the appropriate time. Thank you
    very much.
        Mr. Shuster. Thank you very much, General. And I forgot to
    mention that you were the president of the American Short Line
    and Regional Railroad Association. But I think you made that
    pretty clear to us. So again, thanks. Thanks for being here.
    It's great to see you.
        General Timmons. My pleasure.
        Mr. Shuster. Next up would be Mr. William Callison, who is
    president of the Wheeling and Lake Erie Railroads. Welcome, and
    you may proceed.
        Mr. Callison. Thank you. I am Bill Callison, president of
    the Wheeling and Lake Erie. The Wheeling is approximately an
    850-mile railroad that runs from Toledo in the west through
    Cleveland to Akron, Canton, crosses the Ohio River, goes
    through West Virginia through Pittsburgh, and on to Hagerstown,
    Maryland. We carry about 100,000 car loads of freight per year,
    the majority of which is steel-related products, aggregates,
    coal, chemicals, and plastics. We currently have 325 employees.
        We're a successful regional railroad, but it wasn't always
    so. Like most short lines and regionals, we inherited the 1990
    railroad that had a depleted customer base and severe deferred
    maintenance. Since we've purchased the railroad in 1990, we
    have doubled our revenues, and we have increased our employees
    from 245 to 325. Again, this is not atypical growth.
        Virtually all of today's short line railroads operate at a
    profit on a P&L basis. But the issue is not just profitability.
    The issue really is earning enough to be able to reinvest in
    the infrastructure. We have track, bridges, tunnels, and other
    equipment that has to be maintained in order for us to continue
    to be able to make money.
        We have to earn this money in an environment where we're
    serving really small customers that aren't served by the Class
    I's, and also directly compete with Class I's, where the
    margins are very thin. So--it's a very capital-intensive
    business, and it's very difficult to earn a profit.
        The RRIF, therefore, is ideally suited to meet the
    challenge of upgrading the infrastructure and does so, as you
    know, at no cost to the Federal Government. The short lines and
    regionals could never secure terms as favorable as the RRIF,
    neither in terms of the term of the loan, at 25 years, nor the
    treasury rates. You would either not be able to afford it, or
    you would have to do your projects over a very long period of
    time.
        The Wheeling has two RRIF loans, and I would like to
    describe our experience with those two RRIF loans as the good,
    the bad, and the ugly. The good is the result of the loans. We
    have a $25 million RRIF track rehabilitation loan that allowed
    us to take approximately 120 miles of track from 25 miles an
    hour with numerous 10 mile-an-hour slow orders to 40 miles an
    hour. That higher speed allowed us to increase our asset
    utilization, allowed us to turn our crews, our locomotives, and
    our cars much more quickly. It made us a safer, more efficient,
    more customer reliable railroad, and also lowered our operating
    costs.
        We also have a $14 million loan which allowed us to
    purchase 150 open-top hopper cars during a very tight equipment
    market. While under any circumstances these loans would have
    been very important to the financial success of the company,
    but as we had a very severe recession in 2002 and 2009, where
    we lost almost 50,000 car loads and $20 million in revenues,
    had it not been for the RRIF loans, it would have been very
    difficult for us to continue to operate at a profit. We were
    able to get through this period without laying off a single
    employee or missing a quarterly debt payment.
        The bad was the amount of time it took to secure the loans:
    18 months for the first and 10 months for the second, under a
    statute that requires the government, as you know, to complete
    it in 90 days.
        The ugly was what took place at the end of the second loan.
    The second loan application was made in December of 2005, with
    the understanding that the loans would be approved within 90
    days, and with the expectation that the first loan had
    acquainted the FRA and others with the financial stability of
    the company and the other financial aspects.
        We placed the car order for delivery to begin in April
    2006. The loan was not approved until November 2006. As a
    result, we had to get out a bridge loan, which incurred--a $7.7
    million bridge loan, which forced us to incur $53,500 in
    interest. But, as damaging as that was, there was damage to the
    car builder, having to try to get them to hold off on the
    orders, and to our customers.
        I have worked in the railroad now for about 30 years. I am
    familiar with the FRA and its people. They're both our
    regulators and they're our partners in certain matters, such as
    safety and standards. It's an agency that understands the
    industry and is dedicated to making it better. It is,
    therefore, very hard for us to understand, in general for short
    lines and regionals, why it is that the RRIF program has had
    such troubles.
        I would like to address three issues. The first is that I
    think my colleagues and I believe that there are too many cooks
    in the kitchen--that is that the FRA, the credit council, and
    the OMB are all re-analyzing the same data. The second is that
    both the OMB and the credit council are outside the 90-day
    window. And then finally, that the FRA itself does not have
    adequate resources to look at the loans and get the final
    analysis done. We would like to have them have more resources
    so you're doing one-stop shopping.
        In conclusion, the RRIF has the potential to enhance the
    safety, the efficiency, and the reliability of the regional and
    short line infrastructure and equipment, much to the benefit of
    rail customers, both large and small. With a little bit of
    diligence and oversight, the program's problems can and should
    be fixed. I appreciate the opportunity to appear before you
    today, and I would be very happy to answer any questions at the
    appropriate time.
        Mr. Shuster. Thank you very much, Mr. Callison. I
    appreciate your testimony, and next recognize Mr. John Fenton,
    the chief executive officer of Metrolink.
        Mr. Fenton, you may proceed.
        Mr. Fenton. Mr. Chairman and members of the subcommittee,
    thank you for inviting me to testify today. My name is John
    Fenton, and I am CEO of the Southern California Regional Rail
    Authority, known as Metrolink. My comments today, along with my
    written submission, will hopefully help highlight barriers that
    Metrolink has encountered in our efforts to apply for Federal
    RRIF support.
        I also want to address some suggestions to improve RRIF
    program effectiveness for public transportation entities like
    Metrolink.
        By way of background, Metrolink is the second largest
    commuter rail system by size, and the fifth largest by
    ridership in the U.S., serving close to 20 million people. We
    operate in southern California, a place notorious for traffic
    gridlock with more than 15 million cars vying for space on
    existing streets and freeways.
        We at Metrolink are working hard to provide solutions to
    the gridlock. But to do so, we need the benefit of a
    comprehensive Federal finance approach to public transportation
    infrastructure, including an available RRIF program.
    Unfortunately, due to restrictions imposed by the process
    itself, we at Metrolink are currently unable to take advantage
    of the RRIF opportunity.
        To illustrate, Metrolink recently contemplated applying for
    a $300 million RRIF loan to purchase advanced technology
    locomotives. Our current fleet is one of the oldest and
    highest-polluting in the Nation. But it didn't take long to
    realize that the cumbersome RRIF exercise was not a viable
    option for us. Some of the issues that discouraged our
    involvement include lack of coordinated FTA/FRA rules.
        Some of Metrolink's hard assets were acquired with
    assistance of FTA capital funding. Property acquired with
    assistance of FTA funds has a condition of giving FTA rights to
    the property, if the property is no longer used for public
    transportation purposes. That situation conflicts with the
    condition imposed by FRA RRIF rules, which requires a first
    lien on hard assets. In effect, that means Metrolink cannot use
    an asset as collateral, because the FTA has prior rights. This
    eliminates our ability to use RRIF for these improvements.
        The credit risk premiums, another significant challenge
    with the RRIF program, is the unique feature which requires
    credit risk premiums. In effect, the default risk cost is borne
    by the applicant through the payment of what is called the
    credit risk premium, calculated as a percentage of the amount
    of the loan and the risk of non-payment.
        Again, this cost is a limiting factor for cash-strapped
    public transit agencies like Metrolink. Providing funds for
    RRIF loan credit risk premiums similar to the TIFIA loans would
    be helpful and certainly make the program more financially
    practical.
        Another factor working against us is the requirement that
    each applicant pay an investigation fee to cover FRA's cost of
    evaluating the application, whether or not the loan is
    ultimately approved. These extra administrative expenses can
    make the loan cost prohibitive for government entities with
    limited resources.
        The topic of RRIF loan flexibility will be addressed by my
    colleague on the panel, Mr. Loftus.
        To maximize opportunities for transit agencies to provide
    solutions in their respective communities, RRIF and private-
    public partnerships must be built upon a comprehensive
    investment strategy in the transportation infrastructure. The
    RRIF program is a great opportunity to leverage private
    investment, and we should do everything we can to make it work.
    We encourage more flexibility in the FRA collateral and
    repayment rules, as well as better inter-agency coordination
    between FTA and FRA on funding policies.
        In closing, I would like to emphasize that Metrolink is
    more than a passenger train moving people from place to place.
    We are the solution for some of the major issues facing
    southern Californians today. Metrolink would like to work with
    the subcommittee to identify incentives that will encourage
    greater private investment and streamline processes that
    encourage, rather than discourage investment by public transit
    agencies like Metrolink.
        I want to thank you for the opportunity to appear before
    you today, and I am happy to answer any questions that you
    might have.
        Mr. Shuster. Thank you very much, Mr. Fenton. And I just
    want to give everybody a heads up. Mr. Fenton has to catch a
    2:45 flight to make it home in time for his parents' 60th
    wedding anniversary.
        Mr. Fenton. Sixtieth wedding anniversary.
        Mr. Shuster. So that's fantastic. So what we will do is we
    will finish through the panel. But if anybody has got a
    specific question for Mr. Fenton, I want to try to direct them
    to him early, and then you get out of here when you need to go.
    And I would imagine about 1:15 you probably want to high-tail
    it out of here.
        OK. So we will continue with Mr. Sussman, who is president
    of Strategic Rail Finance.
        Mr. Sussman, please.
        Mr. Sussman. Good morning, Chairman Shuster, and members of
    the subcommittee. My name is Michael Sussman. I own Strategic
    Rail Finance, a company I founded 17 years ago, when I
    discovered that most freight railroads, for no inherent
    business reason, have fewer funding options than companies that
    are much less important to the Nation.
        I have coordinated financing for rail projects in 23
    states, inventing new ways to integrate private sector
    financing with public sector funding. This collaborative
    approach delivers more capital and strengthens rail projects
    for all stakeholders.
        I have been asked by the Committee staff to provide my
    perspectives on the RRIF program. The RRIF program is a USDOT
    loan and loan guarantee program with three main attractions for
    the borrowers. One is the repayment term, which can be as long
    as 35 years. Second is its relatively low interest rate, based
    on treasury securities of a similar term. Most importantly, it
    recognizes the collateral value of track, right-of-ways, and
    transportation facilities, assets for which it is challenging
    to secure long-term financing in the private sector.
        The country can enjoy a substantial return from improving
    the RRIF program. In spite of America's love-hate relationship
    with railroads, rail transportation provides many public
    benefits. Each train load of freight, if moved on our highways,
    requires a convoy of trucks 27 miles long. Since those trucks
    burn two to four times the amount of diesel fuel, the
    consequent increase in air pollution is significant. We need
    trucks as part of a complete transportation system, but we need
    increased rail transportation more than ever.
        RRIF fulfills a role that is missing in the private sector.
    Since Federal de-regulation of railroads in 1980, the number of
    short line and regional railroads has increased from 190 to
    575. At the same time, banks have merged and consolidated,
    leaving behind the close connection between local banks and
    local railroads.
        In spite of the long-term financial stability of rail
    projects, they are more challenging to finance than riskier
    commercial developments such as office buildings and movie
    theaters. So, why does this $35 billion loan program still have
    $34.6 billion available? And what can be done to increase the
    loan activity?
        I will suggest four no-cost remedies, and several process
    improvements. Firstly, I recommend enforcing the previously-
    mandated 90-day timeline for the FRA to make loan decisions.
        Secondly, I would like to see the OMB reverse the practice
    of cutting the collateral values by 20 percent when accompanied
    by professional appraisals. Hardly warranted when the primary
    assets presented in rail projects--i.e., steel, land, and
    rolling stock--are among the most stable collateral items we
    see, often appreciating in value over time.
        Thirdly, it is vitally important to revisit the FRA's
    deprioritization of refinancing made public last September.
    There should be no reluctance to approve RRIF loans for
    refinancing, as long as it supports a comprehensive
    capitalization strategy for successful long-term stewardship of
    rail facilities.
        Fourth, borrowers should be given the option of a higher
    interest rate in exchange for a lower credit risk premium.
        There are other ways to improve the RRIF program, such as
    instituting a clear pathway for the program's loan guarantee
    function, and coordinating with state departments of
    transportation and local banks. I would be gratified to share
    these ideas with the Committee at a later date.
        For now, just a brief mention of process improvements.
    Seeing a RRIF loan application through to completion is like
    raising a child. No one really talks about how damn hard it is.
    And, even if they do, it is harder than anyone has the capacity
    to imagine until they have one of their own.
        What I would like to see is a less expensive, less
    strenuous application process for smaller RRIF loans, in
    support of one of its stated purposes, ``preserve or enhance
    rail or intermodal service to small communities or rural
    areas.''
        As an addendum to my remarks, I have provided data on the
    outstanding repayment history of state revolving loan funds
    that rely on much less application information, and a
    relatively rapid approval process. The RRIF process needs to be
    more predictable and more interactive. Applicants need more
    coaching and support at every stage, and the application itself
    needs to be rewritten by writers, not financial analysts or
    engineers.
        Many of the application questions do not clarify the level
    of data and detail required, and the FRA is often muted in its
    response to inadequate applications. This communication gap
    adds weeks and months to the process, often ending in
    frustration and withdrawn applications.
        Relating to a much simpler state loan application, Kathleen
    Grover, former administrator of Michigan's rail loan program,
    said that 50 percent of the applicants in her state did not
    respond to requests for additional information. Railroaders are
    some of the hardest working people in industry. A successful
    RRIF campaign requires more determination and communication
    than most rail operators can muster.
        If we apply our limited public resources intelligently, we
    can seed private sector investment to accomplish goals that
    neither sector can achieve on their own. The resulting
    innovation can provide the capital environment for railroads to
    substantially increase their contribution to America's economic
    vitality.
        Thank you for this opportunity to present my views.
        Mr. Shuster. Thank you, Mr. Sussman. Appreciate it. And
    next up will be Mr. Thomas Loftus, who is the chairman of
    public private investment and project financing council at the
    American High Speed Rail Alliance, and also principal at Seneca
    Group.
        So, Mr. Loftus, please?
        Mr. Loftus. Mr. Chairman and members of the Committee, I am
    Tom Loftus. I am here today representing the American High
    Speed Rail Alliance. I'm on the advisory board of the Alliance
    and, as the chairman has mentioned, I am chairman of its public
    private partnership and project financing council.
        The membership of the alliance includes state departments
    of transportation, passenger rail corridors, financial
    organizations, the full spectrum of rail supplier companies,
    rail labor unions, and grass roots advocates. The Alliance's
    mission is to advocate for the development and implementation
    of high-speed passenger rail in the U.S.
        I am currently a principal of the Seneca Group, a
    transportation consulting group located here in Washington that
    has worked extensively on railroad rehabilitation and financing
    loans. My purpose today is to propose a number of changes to
    the RRIF program that the American High Speed Rail Alliance
    believes would allow the program to better support the
    development of high speed rail, and help leverage the private
    financing that is badly needed to make high speed rail a
    reality in this country.
        Building world class high speed rail will require a
    significant commitment of resources. The $8 billion provided in
    the 2009 stimulus package, and even the $53 billion that the
    President has proposed, are not sufficient to complete the job.
    These funds are going to have to be matched by local support
    and private investment.
        Let me briefly describe three changes that would provide an
    incentive for private investment. The first proposal is to
    provide RRIF with a TIFIA-like Federal subsidy that allows the
    Secretary of Transportation to modify loan terms by deferring
    payments or subsidizing the interest rate. Deferring payment
    would allow high speed rail applicants to meet the construction
    and ramp up time tables of high speed rail projects, which
    typically run anywhere from 5 to 8 years to 10 years.
        Under TIFIA, repayment can be deferred up to five years
    after completion of the project. The cost of this deferral is
    paid by annual appropriations, initially set at approximately
    $122 million, and supplemented in 2010 to cover additional loan
    activity.
        We propose also that the RRIF subsidy can be used to lower
    the interest rate when the Secretary determines that that would
    make the difference in the viability of a project.
        RRIF and TIFIA interest rates are set based on comparable
    U.S. treasuries. Today, the rate on a 35-year loan is
    approximately 4.7 percent. We estimate that, at today's
    interest rate, a $1.1 billion subsidy would support a 10-year
    deferral of payments, or a 3 percent interest rate on a 35-year
    loan of $5 billion. Put another way, one Federal dollar would
    leverage five dollars in loans to private entities that must be
    repaid.
        We fully understand the need to reduce Federal spending,
    and we know that $1.1 billion is not pocket change. However, if
    the Federal Government is committed to investing in high-speed
    rail, would we not be better off taking a portion of the
    proposed $53 billion and leveraging it at 5 to 1? Given today's
    financial reality, this might be the only way to find the funds
    necessary to build high speed rail in the U.S.
        Collateral is also an obstacle to the high speed rail
    industry. RRIF requires a first lien on hard assets equal to at
    least 100 percent of the value of the project. High speed rail
    projects will not be able to meet this requirement. We propose
    that FRA accept the estimated value of a future stream of taxes
    or fees pledged to repay the loan as collateral. In the case of
    a default, the government is guaranteed this stream of income
    to repay the loan, so it's just as protected as it would be if
    there were hard assets to sell to recover the loan.
        Finally, we propose that development phase activities be
    eligible for RRIF funding. High speed rail projects, as you
    know, require substantial development phase activities,
    including planning, feasibility analysis, and environmental
    review. Under the current RRIF statute, it is unclear whether
    these are eligible costs.
        Uncertain outcomes can make this first phase of the
    projects the hardest to fund. Knowing that a RRIF loan could
    reach back and pay for these costs would make it more feasible
    for private or local government to initially fund these costs.
        High speed rail holds great promise for the American
    people, and high speed rail advocates are rightly passionate in
    promoting its substantial advantages. Congestion relief, energy
    conservation, cleaner air, inter-connected communities are all
    potential benefits. Build-out will create many thousands of
    jobs in providing rolling stock, signaling systems, and
    maintaining the infrastructure will renew critical domestic
    manufacturing and supply industries that we have sadly ceded to
    foreign countries.
        We need to move forward--to move forward, we need to think
    about alternative ways to fund high speed rail projects. These
    proposals are not the total answer, but they are realistic and
    a cost-effective way to begin.
        Thank you for your time, and I am available to answer any
    questions you might have.
        Mr. Shuster. Thank you very much, Mr. Loftus. Appreciate
    that. And again, as I said, if anybody has any direct questions
    to Mr. Fenton, we want to sort of direct them to him. I know,
    Mr. Long, you had a question to the previous--to the Secretary
    about the program. I don't know if you wanted to pursue that
    line of questioning.
        Go ahead, Mr. Long.
        Mr. Long. Thank you, Mr. Chairman. I--and I think he's
    taking the train to his folks' reunion, not the plane, I
    believe.
        [Laughter.]
        Mr. Long. In your testimony, Mr. Fenton, you described a
    lack of coordination--I brought this up with an earlier
    witness--between RRIF program collateral requirements and the
    FTA's policy prohibiting liens on properties I discussed
    earlier.
        Do you have a recommendation on how we can rectify that?
        Mr. Fenton. Well, I think, you know, there has to be a
    recognition of some way that we can take those assets and use
    them as collateral.
        Now, I appreciate the opportunity to sit down with the
    deputy to discuss what those options would be. But until we get
    that matter resolved, I mean, I am completely precluded from
    participating. So I would be anxious to hear what they would
    look at as a viable option on how we solve a very complex
    problem. And I just appreciate the chance that we could sit
    down and work together through the issue.
        Mr. Long. OK. One other question. Why would a public agency
    like Metrolink look to the RRIF program when you have other
    financing tools at your disposal, such as tax-free munis and
    private--that private entities can't access?
        Mr. Fenton. Well, actually, I am owned by five different
    member agencies. I have no taxing authority. I do not have the
    ability to issue bonds. Up to this point, we are funded solely
    through our member agencies. We are dependent upon grants.
        I am trying to expand my options, so we can advance some of
    these projects. When I look at a RRIF program, a lot of the
    projects we are examining would be things that would be--add
    some operating benefit to our organization, as well, and
    hopefully not be a burden from an operating expense, but
    actually create some enhancements.
        So I am not like a lot of government agencies that would
    have the authority to go out and have those tools available to
    me at this point.
        Mr. Long. OK. And then one other quick one here, so you can
    get off to Reagan, but do you view RRIF as a promising
    financing tool for commuter railroads to pay for Positive Train
    Control systems?
        Mr. Fenton. I think at this point it has to be, just
    because of the unfunded need to implement the PTC.
        You know, I am fortunate that we are first out of the box
    with PTC. I am fully funded at this point. But many, many other
    transit agencies are not. And I think that RRIF has to become a
    part of the equation to meet that need on having money and
    capital available for the PTC project.
        Mr. Long. OK. Thank you. And I yield back, Mr. Chairman.
        Mr. Shuster. Before I go to the next line of questioning, I
    will let Mr. Yachmetz engage in this discussion, because--if
    you want to go ahead and respond to some----
        Mr. Yachmetz. Yes. Actually, I would. I'm not quite
    familiar with what the immediate Metrolink problem is.
        We have, as you noted from looking at our list of RRIF
    loans we have granted, funded 50 passenger coaches for Virginia
    Railway Express. And when we also did the Denver Union Station
    project, we subordinated the RRIF program to the TIFIA program.
    Basically, the Secretary subordinated his right pocket to his
    left pocket.
        And so, there is flexibility in the Department. If there is
    an absolute requirement to let FTA have first position on the
    assets, we could look at taking a second position with RRIF. So
    we would be very happy to try to flesh out what the specific
    issue is, because it may actually be something we can just take
    care of administratively.
        Mr. Shuster. That would be good for Metrolink and the FRA
    to get together. Maybe we can resolve some of this. I would
    like to hear back after you've been able to discuss that and
    the outcome of it.
        And with that, we yield to Mr. Larsen.
        Mr. Larsen. Thank you, Mr. Chairman. And I am glad--is it
    Yachmetz--Mr. Yachmetz answered that question. That was one of
    my questions I had for you, relative to Metrolink's issue.
        And I think what I would like to know--if there--if you can
    get back to us--if there is a--rather than solving the problem,
    which I hope you do, is in fact, if this is just a one offer,
    two offer, three offer--it's for Denver, it's for VRE, it's for
    Metrolink, or do you have some sort of guidance on how you
    approach these things? And that, I think, from our
    perspective--it's great to hear you solve the problem. I think,
    from our perspective, we would like to know if you actually
    have some guidance on how you make those choices.
        Mr. Yachmetz. Well, we will certainly get back to you. We
    have had conversations with about three or four commuter
    agencies, and this is the first time this issue has come up. So
    we will be happy to see whether there actually is an issue that
    we have to do a one-off, or maybe just provide some clarity in
    our guidance.
        Mr. Larsen. And we would also expect FTA to respond to us,
    as well.
        So, Mr. Fenton, how is--in your view, how is the credit
    risk premium--how is that different than pursuing a similar
    loan in the private sector? At some point you have to have a
    risk tied to your loan.
        Mr. Fenton. Well, I think it goes back to what's the
    capability to pay. And if you think about what we would be
    subjected to, which would be 1 to 3 percent of the loan, of a
    $300 million loan, you can see, you know, anywhere from $3
    million to $9 million of cost.
        Now, in a public agency, when we're sitting here trying to
    meet the growth needs, whether it's in infrastructure--you
    know, I can build a mile of railroad for $5 million. You know,
    technically, we're taking resources and diverting them into a
    credit risk premium that could be put into improving
    infrastructure. And, you know, since I have sat on both sides
    of the fence, I'm much more constrained with my ability to do
    creative things in the public sector at this point. And every
    dollar means something, especially when you face the many
    challenges we face in southern California.
        So, when I start talking about, you know, $3 million to $9
    million for a credit risk premium, I'm looking at cars,
    locomotives, capacity improvements, things that are sorely
    needed in southern California.
        Mr. Larsen. I would just say every dollar always means
    something. Every public dollar always means something, not just
    when things are good or bad.
        Can you give me a view on whether or not you think we ought
    to--well, does Metrolink have a view on subsidizing the credit
    risk premium, or there is one other idea--it might even have
    been in your testimony--buying up the interest rate to buy down
    the credit risk premium?
        Mr. Fenton. Well, I think the model is really the TIFIA.
    You know, they don't have that aspect as a part of their loan.
    And I think, when you start having some consistency in how
    public agencies are dealt with, whether it's through TIFIA or
    whether it's through the RRIF program, I think they should be
    consistent.
        I think TIFIA has the right model, when it comes to the
    credit risk premium, and I think those dollars should be
    allowed to be put into viable assets, instead of something that
    the credit risk premium--because, you know, I feel very
    comfortable that we would be able to cover our payments.
        Mr. Larsen. Just finally, I am not totally familiar with
    the TIFIA program and how it works, perfectly, but I'm sure if
    we brought people in like this panel to talk about TIFIA, we
    could probably find our own problems there, too. So, you know,
    I'm pushing back very hard on this because it still--whether
    it's your public dollar for Metrolink, or it's a Federal
    taxpayer dollar, it's a taxpayer's dollar that you're asking us
    to begin thinking about making choices about. And there is not
    a lot to go around. In fact, there is negative taxpayer dollars
    going around--at one point $6 trillion in deficit this year
    alone.
        So, that's why I'm pushing back very hard. And before I
    even jump on the TIFIA idea I would certainly be interested in
    seeing how well the people are participating in the TIFIA
    program, and see how that's going.
        It might be a model that works for you, because it saves
    you money. And that's fine. I don't expect anyone to come up
    here and say that--ask us to do things that don't save you
    money. But by the same token, it's not necessarily--if it works
    somewhere else perfectly, I would be happy to look at it.
        Mr. Shuster. Thank you, Mr. Larsen, and I think you make a
    very good point. As we go forward, trying to find the solution
    to improve the RRIF program--and there is some question as to
    whether the FTA will allow their--what they have loaned money
    on to be collateralized to the FRA, and so I'm not sure we're
    clear on that, and that's something we need to delve into
    further and get that squared away so we can move forward.
        In addition to that, what was that--oh, the question on the
    timing of it. The Secretary said that you're within the--FRA is
    within the 90-day window. But my understanding of the law is
    that it says that it needs to be completed within 90 days. And
    you're completing your part, then you're kicking it over to the
    credit council, and it's taking longer and longer.
        So, as I said, I think the law is pretty clear that it's to
    be a 90-day window. Is that true, what the--how I interpret the
    law? Do you interpret it that way? And what's the 90-day
    period? What do you call 90 days?
        Mr. Yachmetz. Well, 90 days, in our interpretation--and I
    think the statute is fairly clear--is from the date we have
    received a completed application until the date that the
    Secretary--or, in this particular case, the Administrator--
    makes a decision on the loan.
        We frequently get incomplete applications. We frequently--
    less frequently, but on occasion we get applications that
    require reviews under the National Environmental Policy Act
    that need to be completed before we can deem the application
    complete. Because we cannot move forward with a loan or a
    grant, because it still falls within the jurisdiction of the
    National Environmental Policy Act.
        So, there is an extended period of time, but I think it
    differs on an applicant-by-applicant basis. And that's why the
    Deputy Secretary was saying we need to do more outreach so we
    can better inform the community about what is needed for a
    completed application.
        So, that is one of the things we will be working on.
        Mr. Shuster. And kicking it out to the credit council and
    OMB outside the 90 days, again, that's--would seem to me you've
    got to shorten your process within your agency, so that you can
    still get it to the credit council within that 90-day period,
    wouldn't----
        Mr. Yachmetz. Well, to be clear, the credit council is
    within the 90-day period. And after receiving a recommendation
    from the credit council, the Administrator makes a decision on
    the loan. And the role of OMB, under the Credit Reform Act of
    1990, is not to approve or disapprove the loan, but to set the
    credit subsidy amount, which is what becomes the credit risk
    premium in the RRIF program.
        So, the way the RRIF statute is written now, that is
    outside the 90-day window.
        Mr. Shuster. And I wanted to make clear, Mr. Fenton, you
    are excused whenever you need to leave, and then we're going to
    go back to sort of more regular order here in asking the
    questions.
        I just wanted to follow up with that question to Mr.
    Callison. Again, your view is the process is way too slow,
    and----
        Mr. Callison. Well, what happened in our case was simply
    that we thought we had FRA approval, and then it was moved to
    the OMB, which caused a considerable delay. And the cars were
    already delivered, and we still did not have approval. And all
    I know is, regardless of how you interpret the statute, in
    fact, the OMB had it, the FRA had done the approval, and we
    didn't have a final--didn't have final loan dispersement until
    some four or five months after the cars were actually
    delivered.
        Mr. Shuster. Thank you. And, Ms. Richardson, if you----
        Ms. Richardson. Yes. Actually, Mr. Fenton, I am glad you
    are still here. I did have a follow-up intended question.
        You heard me ask Secretary Porcari about a commitment for
    both high-speed rail, as well as our existing systems. Do you
    feel that that has been translated through the budget and
    through other things that you've been told, that there is a
    dual commitment?
        Mr. Fenton. You know, I'm not as confident that that has
    been fully articulated. And being at Metrolink now for 10
    months, I see many needs and I am concerned because we aren't
    the future, we're today. I mean we are providing service today.
        And I think it's something that has to be kept on the front
    burner, that as we pursue high speed rail options, you still
    have to move people, you still have to provide service on a
    daily basis. And at this point, we are that person. And I think
    it's important that we continue to be kept in the forefront of
    making sure that we can grow to accommodate the needs of the
    municipalities that we serve.
        Ms. Richardson. And could you articulate specifically what
    is it that you're seeing is a concern, in terms of funding,
    that you feel that the duality doesn't exist? Because Mr.
    Porcari's staff is still here.
        Mr. Fenton. Well, I mean, I guess my concern is that as we
    start to work through the budget and the different processes,
    as our needs--and, look, I'm all about competing. I understand
    that the dollars have to be spent wisely. And, you know, I want
    to make sure that, as we move forward, that we have a stake at
    the table, and that we look at the needs that we have, and rank
    those projects accordingly to what the value and the needs are
    of those municipalities.
        And I don't know if I have seen that process yet, as things
    are starting to unfold. But I do think it is important that we
    continue to keep the local commuter agencies in the forefront,
    because we are providing those services today.
        Ms. Richardson. OK. And then finally, my question to all of
    you. Have any of you had an opportunity to participate in a
    stakeholders' advisory group or something, where it seems to
    me--today you have provided excellent feedback of potential
    suggestions to improve this program. Have you had the
    opportunity to communicate those to the Secretary?
        Sir? Just yes or no. Have you had that----
        Mr. Callison. No, only through the Short Line Association,
    to the extent that they have spoken to the administration.
        Ms. Richardson. OK. Sir?
        General Timmons. No, we have not.
        Ms. Richardson. OK.
        Mr. Fenton. No, I have not.
        Ms. Richardson. OK.
        Mr. Sussman. Only eight years ago, when there was a major
    revamping of the program, and there was a stakeholder outreach.
        Ms. Richardson. OK. Sir?
        Mr. Loftus. I personally have not, but I believe the High
    Speed Alliance has.
        Ms. Richardson. OK. And you, sir?
        Mr. Yachmetz. We are committed to--as Deputy Secretary
    said, we are committed to----
        Ms. Richardson. I can't hear you.
        Mr. Yachmetz. As Deputy Secretary Porcari said, we are
    committed to increasing the outreach that the Department does
    on this program and our other credit programs.
        Ms. Richardson. OK. Might I suggest, Mr. Chairman, that we
    refer these excellent suggestions that our witnesses have
    provided us today of how to improve the program, that we would
    submit them to the Secretary for consideration, and to come
    back to the Committee on his thoughts of those recommendations.
        I think the general would say often times when you're
    requested, a response might come--requested or directed--might
    often times get a stronger answer.
        Mr. Shuster. That's a great suggestion, and we will pursue
    that.
        Ms. Richardson. Thank you, sir. I yield back the balance of
    my time.
        Mr. Shuster. Thank you very much, and yield to Mr. Reed.
        Mr. Reed. Thank you. Thank you, Chairman. I guess the
    question I would ask is you're all willing to meet with the
    Department, I would assume, yes?
        [All nod affirmatively.]
        Mr. Reed. Yes. And the Department is committed to doing
    that. Is that a yes?
        Mr. Yachmetz. That's a yes.
        Mr. Reed. OK, great. How are we going to accomplish that,
    Chairman? How are we going to get that done?
        Mr. Yachmetz. Well, the first part of this is, I think,
    educating the potential applicant pool of the change in
    approach by this administration with regard to credit policy.
    And we have had, actually--while we were waiting for the
    hearing to start, we have had a number of conversations with
    the Short Line Association about us going to their regional
    meetings, their annual meetings----
        Mr. Reed. Excellent.
        Mr. Yachmetz [continuing]. To start the meeting with
    members and prospective applicants, to walk through the process
    and identify what we will be looking for in a completed
    application, how we can help make that process not only more
    transparent, but easier for the relatively small, less
    financially sophisticated companies.
        And one of the other things the Deputy Secretary said is
    that we are looking for other good ideas, how to get out and
    work with the community, because we view this as a very
    valuable opportunity to invest in the transportation
    infrastructure of this country at little or no cost to the
    government.
        Mr. Reed. Well, I appreciate it. So maybe we will have some
    more hearings so everybody can get in the same room and we will
    get some positive movement there.
        One thing that concerned me, Mr. Sussman, in your testimony
    you focused on the application and the questions in the
    applications that ``they do not clarify the level of data and
    detail required.'' Specifically, what in the application is of
    concern to you, and how can we, at the Department--or how can
    the Department clarify, make that--more user friendly, it
    sounds like----
        Mr. Sussman. Yes.
        Mr. Reed [continuing]. Is what you're looking for.
        Mr. Sussman. Well, for instance, there is a question that
    asks the applicant to describe the impact of the improvements,
    the funded improvements, on the safety of their operation. And
    that's the question. What's asked--what they want is a data-
    driven, specific dollars-and-cents, how is this going to be
    spent, how much do they spend for derailments now, what would
    be the projected amount that gets spent on derailments after
    this investment, that type of level of detail.
        And the applicants, not knowing that, answer that question
    like an essay question.
        Mr. Reed. OK. That would make sense.
        Mr. Sussman. Yes.
        Mr. Reed. You have any problem with maybe a little more
    detail in the application?
        Mr. Yachmetz. No. And, in fact, that is one of the reasons
    why we feel like as if now we need to go back out and do
    outreach, which, quite frankly, we have not done for a decade,
    at least, and talk to the community and maybe walk through the
    application, and also see where we can make the application a
    little bit clearer and less onerous.
        Mr. Reed. Do you have any timelines as to when that would
    be completed by?
        Mr. Yachmetz. I believe the National Short Line meeting is
    in May. Our administrator has already committed to speak there,
    and I will probably be out there talking, as well, to the short
    line members.
        And then, over the course of the rest of the year, there
    will be a number of regional meetings, which is where we will
    probably have a lot more of the detailed discussions.
        Mr. Reed. Well, I appreciate that, because this is a great
    program, and I think we want to expand upon it, and I think
    that commitment will go a long way to get more money out there
    into the field.
        Mr. Chairman, I will yield back the balance of my time.
        Thank you very much, gentlemen, I really do appreciate the
    input.
        Mr. Shuster. I thank the gentleman from New York. And
    looking down to see if anybody has any--Mr. Hanna, I will
    recognize Mr. Hanna for a question.
        Mr. Hanna. Mr. Loftus--thank you, Chairman--you describe,
    in your desire to change the definition of collateral, because
    you don't own 100 percent of the assets, the new assets,
    they're still there, they're still collaterable. But then you
    go on to say that the--in the event of a default, the stream of
    revenue from the high speed rail would serve as a collateral.
        But am I missing something, or isn't it, by definition, if
    the stream of revenue was adequate to guarantee the loan, then
    the loan wouldn't default?
        Mr. Loftus. That's correct.
        Mr. Hanna. Well, then why would one lead to the other?
        Mr. Loftus. The operation might default. So if the
    operation had to stop because it's not covering its costs, for
    example, the RRIF loan would still be secured by a separately-
    pledged stream of tax revenue or fee revenue. That's under a
    separate credit agreement with the FRA pledging that stream of
    cash to repay the loan.
        Mr. Hanna. OK.
        Mr. Loftus. And--if the operation wasn't meeting its
    operating costs, for example, and it just had to stop
    operating, that stream of cash would still be there to repay
    the loan, which is similar to what happens in any default,
    except in this case, because high speed rails are not
    constructed at the time the application is submitted and
    approved, there are no assets to pledge. So there are no assets
    to sell in event of default. And this is a proposal for a way
    to deal with that lack of pledgeable assets.
        Mr. Hanna. But the asset is there. You still have----
        Mr. Loftus. It will be there after four or five years, when
    it's constructed. And I guess you could switch over to a pledge
    of assets at that time. But I'm talking about when the loan is
    getting approved. Right now the requirement is to have
    collateral, hard collateral, to pledge to support the loan. And
    that doesn't exist in high speed rail systems.
        Mr. Hanna. I see. So, rather than--you might like to see
    some period of time between conception and when it's built out,
    that associates that problem--that allows you forgiveness of
    that.
        Mr. Loftus. That's not what I suggested, but that would be
    worth considering.
        Mr. Hanna. Well, thank you.
        Mr. Loftus. It would be more risky, I think, from the FRA's
    point of view. But it would be worth considering.
        Mr. Hanna. Thank you. I yield back.
        Mr. Shuster. I thank the gentleman. First question I have
    is to General Timmons, and then I want to come back and, Mr.
    Sussman and Mr. Loftus, I would like the two of you to maybe
    comment on each other's, because there are different solutions
    to the problem. So I would like to hear your assessment on each
    other's, and engage the rest of the panel on your ideas.
        But first, to Mr.--to General Timmons, from a short line
    perspective, why is refinancing such an important eligibility
    under the RRIF program? Can you expand on that?
        General Timmons. I can, Mr. Chairman. A sentence or two
    about the background of that. And as you all may or may not be
    aware, the purchase of those short lines and the equipment and
    the purchase or the loans appropriate for infrastructure
    upgrade are all commercial loans. And so those carry the
    baggage of high interest rates and relatively short term. And
    so, what that really does is bleed off much-needed cash that
    could be used for the reinvestment in the infrastructure of the
    small railroads.
        The RRIF loan provides a relatively low-interest, long-term
    payback which provides a greater cash flow, and you can use
    that money to invest in your railroad. You say, ``Why is that
    such a critical issue, this reinvesting?'' It seems like short
    line railroads are continuing to reinvest.
        The reality is that the rail industry itself is the most
    capital-intensive industry in North America. And of--within the
    railroad industry, the short line industry is the most capital-
    intensive. About 30 percent of their bottom-line revenues go
    into infrastructure upgrades. Why is that? Because they got old
    and deferred maintenance equipment from the Class I railroads
    who got rid of them, as a result of staggers. And so they've
    been in a continuous and perpetual effort to upgrade those
    systems.
        And while that has been going on, keep in mind that the
    short line industry changed from 8,000 miles immediately after
    staggers to 50,000 miles today. And at the same time, the
    requirements for heavier track and heavier equipment and more
    substantial bridges adjusted because we put heavier cars and
    more robust equipment with greater load capacities.
        So, this is sort of a very tightly-woven fabric, where the
    refinance is absolutely at the center of it.
        Mr. Shuster. Thank you very much, General. Appreciate that.
    Mr. Loftus and Mr. Sussman, you both have very different views.
    Mr. Loftus wants to lower the interest rates and provide some
    government subsidies. I take it you put out they are
    government-backed, government-underwritten, and Mr. Sussman is
    talking about increasing interest rates.
        So, Mr. Loftus, if you could, comment on what are the weak
    points in Mr. Sussman's that you think won't work and why yours
    will work.
        Mr. Loftus. Well, first of all, we are talking about
    different sectors of the industry. Mr. Sussman, I believe, is
    talking about primarily short line freight roads, regional
    freight roads. I am talking about the high speed rail industry.
        A key difference is, as we all know, high speed rail does
    not exist. It's an effort to get started. And the rail lines
    themselves have to be constructed. And during that construction
    period, obviously there is no revenue being generated to
    support repayment of the loan. And there is typically a--you
    know, a period of time right at the beginning, after
    construction, where demand for the system gets built up as
    people become aware of it, and they understand the benefits of
    it, and they start to ride.
        So, it's anywhere from three to five years, I would say,
    until it reaches its full ridership. So the deferral would
    address that situation very effectively, from the Alliance's
    point of view. An interest rate subsidy over the length of the
    loan would do some of the same things. It wouldn't cover,
    obviously, the elimination of debt service during construction
    ramp-up, but it would lower the overall coast of the loan over
    the period of the project.
        Mr. Shuster. So I misunderstood. I thought you were talking
    about financing the same way.
        But, Mr. Sussman, could you expound on yours--higher
    interest rates----
        Mr. Sussman. My suggestion of an enhancement to the program
    would be to add an option for borrowers to agree to a higher
    interest rate in exchange for lowering the credit risk premium.
    For some applicants, that will be very attractive. For others,
    not. It all depends on the amount of the loan, and the rest of
    their financial structure.
        Mr. Shuster. Would you see--and, as you said, it depends on
    the applicant. From what you've seen out there, do you think
    there would be a significant number that would prefer what
    you're proposing, or not sure, or--I mean what do you think the
    market is out there for your recommendation?
        Mr. Sussman. Yes, I think there would be considerable
    interest in that. Certainly the credit risk premium, which,
    just for reference, is typically, for the loans that have been
    approved so far, has been in the two, three, four percent, and
    that requires the applicant, for every $100 that they want to
    accept in a loan, they have to pay in, you know----
        Mr. Shuster. Right.
        Mr. Sussman [continuing]. $2, $3, $4. So, for some----
        Mr. Shuster. Right.
        Mr. Sussman [continuing]. That's another one of the
    hurdles----
        Mr. Shuster. Right.
        Mr. Sussman [continuing]. To getting to the finish line.
        Mr. Shuster. And the--some, I would assume, would be
    interested--stronger balance sheets, higher operating profits,
    they're not afraid to----
        Mr. Sussman. Yes.
        Mr. Shuster. OK.
        Mr. Sussman. Yes.
        Mr. Shuster. And, Mr. Callison, could you comment on what
    your thoughts are on what Mr. Sussman is presenting? Is that
    something you're interested in, or----
        Mr. Callison. I think it's an interesting option, to have
    the ability, rather than to have a credit risk premium, to be
    able to pay a default rate risk in the interest rate. I think
    it's an interesting option.
        Mr. Shuster. And, General Timmons, your thoughts as an
    industry-wide----
        General Timmons. I think it's an option. Obviously, now,
    the--based on the collateral that you put forward, the less you
    put forward the higher your interest rate. The more you put
    forward, if you collateralize it at 120 percent or 130 percent,
    your interest rate gets pretty low.
        Mr. Shuster. Right.
        General Timmons. Four or five percent. So the program today
    has that flexibility built into it. And so, it just depends on
    how much you want to step forward on that amount.
        Mr. Shuster. OK. All right. Well, anybody else want to
    comment?
        Mr. Yachmetz. Well, just a couple points. The whole concept
    of the credit risk is actually built into the Credit Reform Act
    of----
        Mr. Shuster. I'm sorry, could you repeat that?
        Mr. Yachmetz. The concept of the subsidy amount, the credit
    risk, actually flows from the Credit Reform Act of 1990, and
    applies to all of the Federal Government credit programs. So,
    fixing this for RRIF may not be best. You may want to look at
    this in the context of all credit programs.
        And then, another--just to point out, a number of the
    people here talked about the difference between TIFIA and RRIF.
    And one of the good things about RRIF is, in fact, the credit
    risk premium being able to be paid by individual companies,
    because that takes us out of the appropriations environment.
    The way TIFIA is different--because it was created under title
    23----
        Mr. Shuster. Right.
        Mr. Yachmetz [continuing]. Is there is contract authority
    to pay it. And in the last year or two, when the contract
    authority ran out, TIFIA started imitating RRIF, and letting
    individual companies or individual applicants actually pay the
    credit risk premium, rather than wait for contract authority to
    be available again.
        Mr. Shuster. OK. Well, thank you very much for that. And I
    want to thank all of you for coming here today. Again,
    apologies for getting a late start. I appreciate that. And we
    will take Ms. Richardson's idea to pursue this further.
        I have to do a UC. I think I've got to step out for a
    minute. Mr. Denham wants to ask a few questions. And let me do
    this first, it's my housekeeping. I ask unanimous consent for a
    statement to be put in the record for Chairman Mica, and also
    to insert his October 15th and my October 15, 2010, letter to
    the Department of Transportation on the RRIF guidance, our
    concerns on that. Without objection, I want to put those both
    into the record.
        [Hon. Mica's statement is on page 59; the letter follows:]
        [GRAPHIC] [TIFF OMITTED] 65451.021

        [GRAPHIC] [TIFF OMITTED] 65451.022

        Mr. Shuster. And with that, you will be the final
    questioner, if you had a couple of questions. Fine, and then
    you get to sit here. I have to step out and take a meeting. So
    thank you all very much, and Mr. Denham will finish up.
        Mr. Denham. [presiding]. Thank you, Mr. Chairman. Thank
    you, Mr. Shuster.
        I just have a few quick questions on--primarily on
    California high speed rail. Obviously, we have had a number of
    concerns, you're seeing a number of amendments on the floor
    right now addressing a variety of different topics, as it
    pertains to funding for high speed rail.
        My biggest concern right now is the private capital that is
    supposed to make the entire project whole. Mr. Loftus, I wanted
    to specifically ask you. The question that keeps coming up is:
    When is enough Federal money enough? And do you expect any more
    state money? So, when you get those two pieces figured out, at
    what point does the private industry step in, and when does it
    become a financial--and when is there a financial incentive for
    a private company to actually come in and take the burden, the
    final burden, of this?
        Mr. Loftus. Obviously, that's a very project-specific
    situation. But, in general terms, private money will come in
    when they believe they can earn what--the return they want to
    make on their money.
        Mr. Denham. I would agree.
        Mr. Loftus. Anyway, that's very obvious, right?
        Mr. Denham. Yes.
        Mr. Loftus. And the concept is, to the extent the Federal
    Government can remove the risk of the project by providing
    funds, and the private sector, in effect, tops up the required
    amount of funds, that will increase the returns, just by the
    fact that they put in less money to get the returns that the
    project generates.
        And I can't say where that would be. I believe private
    sector return requirements are probably in the 14 percent range
    on these types of projects. And, again, it's very project-
    specific. Cash flow is what generates returns. So the ridership
    forecasts and the cost estimates, all of that will be--and the
    cost to construct the system, all of that will play into what
    the private sector perceives as the potential returns.
        And to--again, to the extent that the Federal Government
    grants money and the RRIF loan facility is adjusted--perhaps in
    the ways I have suggested, or other ways--to the extent that
    removes risk from the project, the private sector would be more
    interested in stepping in and providing financing.
        Mr. Denham. So do you have a specific modeling that would
    show when the risk would be low enough for private investors to
    step in and be profitable?
        Mr. Loftus. Yes, we do. And I can provide that later, you
    know, after the meeting, or to your staff, if you like.
        Mr. Denham. Thank you. And specifically on the California
    high speed rail project, what do you anticipate the Federal
    Government and state government are going to have to put in?
        Mr. Loftus. I can give you an answer, but I can't say that
    number right now. I just don't have enough information in my
    head to answer that. But it will be substantial. It's a large
    system.
        Mr. Denham. Yes, I understand it's going to be substantial.
        You know, we took a bond--were you still there when we
    voted on that in the legislature? We voted on it at the
    legislature. At the time, $9.95 billion. We took that to the
    voters, we told the voters that was all that Californians were
    going to have to pay. You know, that was assuming that a large
    portion was coming from the Federal Government. But now these
    numbers continue to escalate.
        So, my fear is, now that we're pulling communities out of
    thin air and putting rail stops between the first segment, that
    not only does the public lose interest, but more importantly,
    we actually run out of money and never are able to finish a
    project because we can't encourage private investors.
        So, my concern is making sure that this model works, and we
    continue to move forward on a project that is not penciling out
    today.
        Mr. Loftus. Right.
        Mr. Denham. Do you have that same concern?
        Mr. Loftus. Oh, yes. Of course. I mean, obviously, no one
    wants to pursue projects that don't make economic sense. And we
    would not suggest doing that, although we do think that
    Federal----
        Mr. Denham. But that is what we are doing right now today.
    As other states give up money, we're trying to grab that money.
    And I realize that we're trying to grab that money to make the
    project whole, but we're doing it without understanding
    specifically what the model is to make it successful and
    complete.
        Mr. Loftus. Well, I can--I will show you a model of a high
    speed system that makes sense. I will provide that to your
    staff.
        And also, you know, historically, passenger operations of
    any kind, passenger rail operations of any kind, like the
    highways, have not covered their costs. There has always been
    some government subsidy involved, including on the highways. So
    a lot of this is sort of the unquantifiable public benefits.
    There is no cash benefit that you can put on the public benefit
    of having better transportation systems in any type of--any
    mode of transportation.
        Freight railroads are different, because they're
    transporting goods that are sold, and companies need to
    transport those goods, so that's a very different model of
    transportation than passenger transportation. And I think
    history shows that the country has been willing to finance
    passenger transportation modes--again, including highways --
    because they believe there is an overall benefit to society,
    whether there is the cash return or a lack of subsidy
    requirement has generally been the case, and it's also
    generally been that the government is willing to support that.
        Mr. Denham. And I would agree that the American public
    would be willing to support a project that will have the
    ongoing ridership numbers. Where they see the biggest need, you
    know, they can see the investment to put the capital forth to
    get the project started and actually complete.
        But I believe--it's my belief--that the American people
    expect the ridership numbers to pencil out, so that it's not an
    ongoing subsidy. That would be the administration's position,
    as well. I mean is that not how we're moving forward on each of
    these projects, is putting the assets out there, and then
    expecting the private companies to be able to fulfill the
    ridership numbers?
        Mr. Loftus. That is the model that Florida is pursuing,
    even though the governor returned the funds.
        Mr. Denham. And what different challenges are you seeing?
    This is high speed in general, across the Nation. What
    challenges would you see that would be different in, say, the
    northeast corridor versus California or any of the --are there
    different regional challenges, I guess, is my question.
        Mr. Loftus. There are. The northeast corridor, it's an
    existing infrastructure, travels through very densely populated
    areas. So, to turn that into a true high-speed rail operation
    is going to be difficult, just from an engineering point of
    view. It can be done.
        In California, they are running over, in many cases,
    existing freight lines. So the interaction between freight and
    passenger will be something that needs to be worked out. And
    they're also building new dedicated facilities.
        Florida, I believe, is primarily, in this first leg, Tampa
    to Orlando, I think that's pretty much dedicated right of way.
    When they've moved beyond Orlando, trying to go down to Miami,
    then they're going to be sharing track with a freight railroad
    operation. So that interoperability difficulty is present
    there.
        Mr. Denham. And which of those routes would be most
    attractive to private investors?
        Mr. Loftus. I--right now, Florida is the only one that I am
    aware of that is well-enough defined for the private sector to
    get their hands around. And as Secretary Porcari said earlier,
    the private sector was ready to take on that project, including
    ridership risk, but the governor chose to return the funds.
        Mr. Denham. And you have a model on all three of those
    projects?
        Mr. Loftus. No.
        Mr. Denham. Just----
        Mr. Loftus. I have a model on a project that I will provide
    to your staff.
        Mr. Denham. OK. So the project model that you have would be
    the same for all three?
        Mr. Loftus. No, no, of course not. I mean the riderships
    are different, the cost to construct is different. The cost to
    operate is different. But, in concept, the ability to generate
    returns would be conceptually the same, yes.
        Mr. Denham. OK, OK. But you do have three models for all
    three projects.
        Mr. Loftus. No, I don't. I have one project.
        Mr. Denham. You have----
        Mr. Loftus. The models for those projects are proprietary,
    and they're not available to the Alliance.
        Mr. Denham. Oh, OK. OK, thank you.
        My final question, Mr. Yachmetz, how many grants did FRA
    administer before the ARRA?
        Mr. Yachmetz. You mean all kinds of grants? We--generally
    speaking, we had--before the Recovery Act we had two big
    grants, Amtrak's capital and debt service was one grant, and
    operating was another grant. And then we would, on a regular
    basis, have 20 to 30 small grants, and 2 or 3 RRIF loans.
        Mr. Denham. Thank you. Ms. Richardson, do you have any
    final questions?
        Ms. Richardson. Yes. Thank you, Mr. Chairman. I just wanted
    to follow up on a few of the questions that you asked.
        Mr. Loftus, which project are you working with with high
    speed rail currently, that you have a model for?
        Mr. Loftus. The DesertXpress system.
        Ms. Richardson. Excuse me?
        Mr. Loftus. DesertXpress, from Victorville, California to
    Las Vegas, Nevada.
        Ms. Richardson. OK. Mr. Chairman, for the record, I think
    some of the answers of what Mr. Loftus provided were actually
    not originally within the overall scope of this committee's
    jurisdiction, and I--not jurisdiction, in terms of our hearing
    today.
        And I want to thank you. It's my understanding I think
    earlier today you were considering an amendment on the floor
    and you withdrew, and I want to express gratefulness to that,
    because I know we do have an upcoming hearing in your area--in
    fact, next week--that I plan on attending.
        But I would just say that I have attended, because I am one
    of the co-chairs of the high speed rail caucus for California,
    and I would welcome your involvement with that. It is a
    bipartisan caucus. And I think that some of the things that Mr.
    Loftus said--I have participated in at least three or four
    meetings where I have engaged with great private sector
    involvement, and hope to be involved with with our projects.
        So, maybe after we learn from the hearing next week, we
    will be able to speak to the chairman, Mr. Shuster, about
    having a more intensive high speed rail discussion with all of
    the appropriate parties present, so before we make decisions
    of, you know, yea or nay on something, that we have everything
    at the table. Thank you, sir.
        Mr. Denham. This hearing is adjourned.
        [Whereupon, at 1:33 p.m., the subcommittee was adjourned.]